Indian Stocks Drop, Pare Monthly Advance, on Valuation Concern

Indian stocks dropped, paring the benchmark index’s third monthly gain, amid concerns its recent rally to a two-year high has made valuations expensive.

The BSE India Sensitive Index, or Sensex, slid 0.6 percent to 19,894.98 at the close. The gauge has fallen 1 percent since climbing to a two-year high of 20,103.53 on Jan. 25. ICICI Bank Ltd., the country’s biggest private lender, lost 1.8 percent, ending a four-day advance. Reliance Industries Ltd., the owner of the world’s largest refining complex, declined for the fifth time in six days.

The Sensex completed a third month of gains, rising 2.4 percent in January, as foreigners bought a net $3.9 billion of local shares, a record for any January month, data compiled by Bloomberg show. The gauge trades at 15.8 times estimated earnings, near the highest levels since February 2012, the data show. The MSCI Emerging Markets Index is valued at 11 times.

“The markets are no longer cheap,” K. Ramanathan, chief investment officer at ING Investment Management Pvt. in Mumbai, said in an interview to Bloomberg TV India today. “One has to remember the fact that we had a very good run last year.”

The Sensex jumped 26 percent in 2012 as government efforts to cut subsidies, allow higher foreign investment and speed up infrastructure projects to revive growth lured overseas funds. Offshore funds bought a net $24.5 billion of shares last year, the most among 10 Asian markets tracked by Bloomberg, helping the gauge to its biggest annual gain since 2009.

ICICI Bank dropped 1.8 percent to 1,191.15 rupees, the biggest drag on the Sensex today. It had gained 4.1 percent in the past four days. The lender posted a record profit of 22.5 billion rupees ($423 million) in the December quarter, beating the 20.8-billion rupee median estimate in a Bloomberg survey.

Earnings Scorecard

Only three out of 15, or 20 percent, of Sensex firms that have reported December-quarter earnings have missed forecasts, compared with 40 percent in the previous two quarters, data compiled by Bloomberg show.

Reliance slid 1.4 percent to 886.65 rupees, falling for a fifth time in six days. HDFC Bank Ltd. lost 2.1 percent to 643.05 rupees, the lowest level since Nov. 16. Tata Power Co., India’s largest non-state generator, sank 2.2 percent to 101.1 rupees. That’s the lowest close in 10 weeks.

Volumes on the Sensex were 29 percent higher than the 30-day average. The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. retreated 0.4 percent to 6,034.75. Its January futures expired today. India VIX, which measures the cost of protection against losses in the Nifty, dropped 1.7 percent to 14.13.

Futures Expiry

Traders rolled over fewer contracts in Nifty futures this month. Open interest, or the number of contracts outstanding in Nifty index futures, totaled 450,193 at 3:30 p.m. That compares with 550,713 on Dec. 27, when the December series expired, the data show. Derivative contracts in India expire on the last Thursday of each month.

“Traders are bracing for consolidation after the recent stocks rally,” Siddarth Bhamre, head of derivatives at Angel Broking Ltd., said by phone from Mumbai.

Bharat Heavy Electricals Ltd., the nation’s largest power equipment maker, and Bharti Airtel Ltd., the top mobile-phone operator, are the Sensex members scheduled to report earnings tomorrow. BHEL rallied 2.7 percent to 227.80 rupees, the most since Dec. 18. Bharti slumped 1.5 percent to 339.60 rupees in a sixth straight day of losses.

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