India’s Sensex Drops Second Day on Valuation; Carmakers Slump

Indian stocks fell to a one-week low as some investors judged the rally that drove up the benchmark index to a more than two-year high last week as excessive.

The S&P BSE Sensex retreated 0.6 percent to 20,111.61, the lowest close since May 14. The measure completed a fifth week of gains on May 17, the longest such run since October. Tata Motors Ltd., the owner of Jaguar Land Rover luxury car brands, slumped to a two-week low. Maruti Suzuki India Ltd. lost 2.6 percent, the most in two months.

The Sensex climbed last week to its highest level since Jan. 5, 2011, and has rebounded 10 percent from a seven-month low on April 9, as foreign funds extended equity purchases amid easing by central banks from India to Europe. The gauge trades at 13.9 times projected 12-month profits, near the highest level since October, data compiled by Bloomberg show. The MSCI Emerging Markets Index has a multiple of 10.6 times.

“At these levels, valuations for some of the large-cap names seem to be on the higher side,” Mahesh Patil, chief investment officer at Birla Sun Life Asset Management Co. in Mumbai, said in an interview with Bloomberg TV India today. “We’d be a bit cautious now, but our medium- to long-term view remains very much positive.”

Tata Motors slumped 3 percent to 292.95 rupees, its lowest close since May 6. Maruti Suzuki, India’s biggest carmaker by volume, dropped 2.6 percent to 1,697.40 rupees, the most since March 21. Mahindra & Mahindra Ltd., the largest producer of sport-utility vehicles, slid 1.4 percent to 987.75 rupees.

Fund Inflows

Foreigners bought a net $195 million of stocks yesterday, taking their total inflows for local equities this year to a net $13.7 billion, a record for the period and the largest among 10 Asian markets tracked by Bloomberg, behind Japan. The funds last week purchased a net $883 million, the most since the period ended Feb. 8.

The flows have helped the Sensex climb 3.5 percent this year, the most among benchmark measures in the BRIC group of the largest emerging nations. The Reserve Bank of India pared interest rates this month to 7.25 percent from 7.5 percent, joining policy makers in Australia, Europe and South Korea in cutting funding costs to support growth.

India’s record current-account gap, along with elevated consumer prices, has deterred the RBI from reducing rates at a faster pace even as economic growth slowed to a decade-low of 5 percent in the year ended March, according to an estimate from the government. Official data last week showed the wholesale-price index, a measure of inflation, rose the least in 41 months. That prompted RBI Governor Duvvuri Subbarao to say the data will be taken into account for the next policy decision, due to be announed on June 17.

Earnings Scorecard

Coal India Ltd., the world’s largest producer of the fuel, climbed 2.1 percent to 307.50 rupees, the most in a month, after posting a 90 percent increase in standalone quarterly profit yesterday. The company will report group results May 27.

Profit at just two of the 17 Sensex companies that have reported March-quarter results so far has lagged behind analyst estimates, data compiled by Bloomberg show. Net income at about 43 percent of the 30 index companies missed forecasts in the three months ended Dec. 31, compared with 40 percent in the previous two quarters.

NTPC Ltd., the country’s largest electricity producer, tumbled 4.5 percent to 152.3 rupees, the biggest decline since July 2009. State Bank of India, the largest lender, retreated 2.1 percent to 2,360.70 rupees.

Volume on the Sensex was 12 percent more than the 30-day average today. The 50-stock CNX Nifty Index on the National Stock Exchange of India Ltd. lost 0.7 percent to 6,114.10 while its May futures settled at 6,116.90.

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