Indian Stocks Retreat Most in Six Weeks Amid Valuation Concern

  • Lupin extends Tuesday drop as CLSA cuts rating, price target
  • FIIs invest $560m in August amid strong emerging-market inflow

Indian stocks declined, led by energy and healthcare companies, amid concern the rally fueled by capital inflows has outpaced the outlook for earnings growth.

Lupin Ltd. plunged for a second day after it was downgraded by CLSA Asia-Pacific Markets. Indian Oil Corp. lead state-owned refiners lower after reaching life-time highs earlier this week. Indian Overseas Bank retreated the most in six weeks after its bad loans widened. Motherson Sumi Systems Ltd. slumped 6.5 percent after its earnings report.

The Sensex tumbled 1.1 percent at the close, the steepest loss in more than a month. The gauge has struggled after reaching a one-year high last week amid the highest valuations in 15 months and an uneven recovery in corporate profitability. Ten of the 20 companies on the index that have reported June-quarter results so far, have disappointed investors.

“The results season has been mixed and the broader triggers for the market are over,” Jagannadham Thunuguntla, head of research at Karvy Stock Broking Ltd., said by phone from Hyderabad. “We’re seeing some profit-booking because we’ve seen a good rally in the last four-to-five months. Liquidity has been strong.”

Foreigners have bought a net $5.2 billion of local shares this year, the most after Taiwan and South Korea, as flows to emerging markets accelerated amid a wave of global policy easing triggered by the U.K.’s vote in June to exit the European Union. Global funds have been net buyers of local shares every month since March.

Pricey Valuations

The inflows have helped the Sensex rebound 21 percent from a bear-market low reached in February. The measure’s 12-month estimated price-earnings ratio reached 16.5 times at the end of July, the highest since April 2015, compared with a multiple of 12.5 for an index of emerging markets.

Lupin tumbled 3.9 percent to 1,544.40 rupees, extending Tuesday’s 5.1 percent fall. CLSA lowered its recommendation on the stock to sell from underperform, and slashed its price target to 1,500 rupees from 1,740 rupees.

“We believe Lupin may have seen its best quarter for some time," analysts Alok Dalal and Alok Srivastava wrote in a report.

Indian Oil plunged 4.7 percent, the most in a year. Bharat Petroleum Corp. slid 2 percent and while Hindustan Petroleum Corp. lost 3.8 percent. Indian Overseas Bank tumbled 2.9 percent in a third day of decline.

Motherson Sumi plunged 6.5 percent, the most since June 24. June-quarter group profit rose 16 percent to 4.4 billion rupees from a year ago. Standalone net income dropped 10 percent to 1.44 billion rupees. EBITDA margin at unit Samvardhana Motherson Automotive Systems Group narrowed to 7.1 percent from 8 percent three months ago.

“Quarter-on-quarter margin decline at Samvardhana Motherson Automotive Systems and year-on-year net income decline in standalone operations are main reasons for the stock fall,” Pramod Amthe, an analyst at CIMB Securities India Pvt., said in a phone interview.

Reliance Industries Ltd., owner of the world’s largest refining complex, slid 2.6 percent, its first decline in four days.

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