Most Indian stocks declined as volatility increased before options expiry this week and some investors speculated a rally to all-time highs is overdone.
Three stocks fell for every two that rose on the S&P BSE Sensex, which added 0.1 percent to 24,716.88 at the close. The 30-stock gauge swung between a gain of 2 percent and a loss of 1.1 percent. Power-equipment producer Bharat Heavy Electricals Ltd. dropped the most in eight months, while Mahindra & Mahindra Ltd. rallied to a record. The India VIX surged 12 percent, ending a six-day, 52 percent slump.
The Sensex still closed at an all-time high amid optimism that Narendra Modi will form a new cabinet capable of reviving economic growth. The measure has risen 25 percent since Sept. 13, when the Bharatiya Janata Party named Modi as its candidate for prime minister. It trades at 15.3 times projected earnings for the next 12 months, compared with a five-year average of 14.6 times, data compiled by Bloomberg show.
“The sharp run up made valuations a bit stretched,” Jagannadham Thunuguntla, the chief strategist at SMC Global Securities Ltd., said by phone from New Delhi. “A small correction is natural.”
The S&P BSE Mid-Cap and the S&P BSE Small-Cap indexes fell the most in four months, paring a post-election surge that had sent the gauges to their highest level in three years on May 23. An index of 30-day volatility for the mid-cap index climbed to the highest level since September.
The BSE Realty Index of 13 developers dropped 5.2 percent, the steepest fall among 13 sector indexes compiled by the BSE Ltd. It had risen 38 percent this year through May 23.
“It is a case of classic profit-booking in the mid, small and high-beta stocks,” Ashish Chaturmohta, head of technical and derivatives research at Fortune Equity Brokers Ltd., said by phone from Mumbai.
The Sensex has risen 10.3 percent in May, headed for its best monthly gain since January 2012. The rally pushed up the index’s 14-day relative-strength index to 84 earlier today, the highest level since 2007, data compiled by Bloomberg show. Some investors see reading above 70 as a signal to sell.
Foreigners sold a net $19 million of local shares on May 22, paring this year’s inflows to $7.6 billion. That is still the highest among the eight Asian markets tracked by Bloomberg.
Bharat Heavy plunged 4.8 percent, paring this year’s gain to 47 percent. Tata Power Co., the nation’s biggest generator outside state control, declined 4.2 percent. The S&P BSE India Power Index dropped 2.9 percent, ending a 13-day rally.
Sun Pharmaceutical Industries Ltd. rose 1.2 percent after a local court removed the stay on the drugmaker’s $3.2 billion purchase of Ranbaxy Laboratories. Mahindra & Mahindra soared 6 percent to a record. Tata Motors Ltd. jumped 3 percent, while the S&P BSE Auto index climbed 1.5 percent to an all-time high.