Indian Stocks Decline as Rally to Seven-Month High Seen Overdone

  • Tata Motors soars as profit triples; Sun Pharma disappoints
  • Sensex rallies 4.1% in May for best performance in Asia

Indian stocks dropped for the first time in six days as some investors bet the rally that pushed up the benchmark index to a seven-month high may have outpaced the recovery in earnings growth.

The S&P BSE Sensex slid 0.2 percent at the close, after changing direction at least eight times. Tata Motors Ltd., owner of Jaguar Land Rover, jumped the most since September 2013 after its quarterly profit tripled. Aurobindo Pharma Ltd. climbed the most in a month after its results matched estimates, while Sun Pharmaceutical Industries Ltd. retreated the most in 10 months after earnings lagged behind estimates.

Anyone in the stock market following the conventional ‘sell in May and go away’ cliche was proven wrong as the Sensex rallied 4.1 percent for its best performance among Asian indexes. A recovery in company earnings after declines in four of the last five quarters and forecast for above-average rain following back-to-back droughts has lifted investor confidence. The gains sent the index’s 14-day relative strength index to 69, the highest level in a year and near the 70 threshold that some investors see as a signal to sell.

“The index is likely to consolidate, given the rally has been been quick,” Lancelot D’Cunha, chief executive officer at Crest Wealth Management Pvt., said by phone from Mumbai. “Some of the key earnings this season have been better than estimates, and that, coupled with a good monsoon forecast, has boosted sentiment.” He is advising investors to buy shares of consumer companies linked to the rural economy.

Earnings Scorecard

Sixty six percent of the companies in the NSE Nifty 50 Index posted earnings in the March quarter that exceeded or matched estimates. This compares with 52 percent in the three months ended December, data compiled by Bloomberg show. Sales for Sensex companies increased 7 percent year-on-year after five straight quarters of declines, the data show.

Tata Motors surged 9.1 percent to its highest level since June 2, 2015. Fourth-quarter profit rose to 51.8 billion rupees ($771 million) in the March quarter, the company said after market hours on Monday. That compares with the 35.3 billion-rupee average of 25 analysts’ estimates compiled by Bloomberg.

State Bank of India rose its highest level since January. The stock has rallied 22 percent in six days through Tuesday. The lender last week reported a bad-loan watch list that was smaller than its closest rivals.

Sun Pharma

Aurobindo Pharma soared 4.1 percent, paring this year’s loss to 10 percent. Tata Steel Ltd. increased 3.5 percent, the most since April 20. Maruti Suzuki India Ltd., the largest carmaker, advanced 2.3 percent to its highest level since Jan. 19.

Sun Pharmaceutical plunged 6.1 percent, the most since July 21. Net income rose about 93 percent from a year earlier to 17.1 billion rupees, lagging an average estimate of 19.1 billion rupees according to 19 analysts surveyed by Bloomberg.

Overseas funds bought $58 million of local stocks on May 27, taking the month’s inflow to $383 million, the highest among eight Asian markets tracked by Bloomberg. They bought $585 million in April and $4.1 billion in March, which was the most in three years.

“While there have been a few earnings disappointments, money is coming in from funds who have a good bottom-up understanding of Indian markets, investors who know there are opportunities in select companies,” Arvind Sanger, managing partner at Geosphere Capital Management LLC., told Bloomberg TV India today.

The Sensex has climbed 2.1 percent so far this year and is valued at 16.5 times 12-month projected earnings, compared with its five-year mean of 14, and a multiple of 11.6 for an index of emerging markets.

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