Indian Stocks Drop Most in Asia as Rally Seen Overdone

Indian stocks declined, with the benchmark gauge capping its biggest weekly loss in three months, as some investors judged recent gains as excessive.

Bharat Heavy Electricals Ltd., a power-equipment producer, was the worst performer on the S&P BSE Sensex, while Larsen & Toubro Ltd., the biggest engineering company, decreased for the fourth time this week. Sesa Sterlite Ltd. completed a second weekly loss, leading metal producers lower.

The Sensex tumbled 1.5 percent to 28,503.30, extending the week’s drop to 3.2 percent, the steepest since the period ended Dec. 12. Stocks slid on concern the Federal Reserve may signal earlier interest rate increases at its meeting next week. The measure’s valuation climbed to near a four-year high last week after the central bank cut rates for the second time this year and Prime Minister Narendra Modi’s first full-year budget outlined plans to spend more on infrastructure.

“The markets had become slightly overbought and frothy after the budget and the surprise rate cut by the RBI,” Dipan Mehta, a member of the BSE Ltd., told Bloomberg TV India today. “Investors should factor in a 10 to 12 percent correction from the peak.”

The Sensex has slid 5 percent from a record intraday high of 30,024.75 reached on March 4. The gauge still trades at 15.9 times its 12-month estimated earnings, 10 percent premium to its three-year average, data compiled by Bloomberg show.

Earnings per share for the 30 index companies dropped 2.5 percent in the December quarter, the first decline since the three months ended June 2013, the data show.

Earnings Outlook

“Last quarter’s earnings weren’t supporting valuations,” Lancelot D Cunha, chief executive officer at Mumbai-based ITI Wealth Management Pvt., told Bloomberg TV India today. “While the budget was a trigger for sentiment and momentum, it will take a while before we see an improvement in earnings.”

Bharat Heavy slid 3.5 percent, while Larsen tumbled 3.2 percent to its lowest level since Feb. 26.

State Bank of India, Axis Bank Ltd. and ICICI Bank Ltd., the nation’s largest lenders, declined at least 2.2 percent.

Sesa Sterlite and Hindalco Industries Ltd., the largest producers of copper and aluminum, fell at least 2.3 percent, while Tata Steel Ltd. retreated 2 percent.

Hindustan Unilever Ltd. and Sun Pharmaceutical Industries Ltd., the top performers on the Sensex this year, decreased at least 2 percent.

DLF Ltd., the biggest developer, jumped the most since Jan. 23 after an appellate tribunal quashed a ban on its billionaire founder from the securities markets.

Global investors bought a net $142.2 million of domestic shares on March 12, taking this year’s inflows to $5.4 billion, the highest among eight Asian markets tracked by Bloomberg, after Taiwan. They bought $16 billion of stocks last year.

(Corrects to say DLF ban quashed in 12th paragraph of story published March 13.)
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