Indian Shares Fall From October High as Rally Deemed Excessive

  • Gauge’s 14-day RSI rose to 71, signaling gains may be capped
  • Infosys, Hero MotoCorp, ITC among top losers on Sensex

Indian stocks fell for the first time in three days, led by software exporters and consumer goods companies, as some investors deemed the benchmark gauge’s rally to a seven-month high to be excessive.

Dr Reddy’s Laboratories Ltd. and Infosys Ltd., the second-largest software services provider, were among the biggest losers on the S&P BSE Sensex. Housing Development Finance Corp., the biggest mortgage lender, dropped to a one-week low. ITC Ltd. and Hindustan Unilever Ltd. both fell more than 2 percent each.

The Sensex lost 1 percent to 26,763.46 at the close in Mumbai. It rose to a seven-month high on Wednesday after the central bank said this week it remains willing to cut borrowing costs as long as conditions allow, and as the odds of a rate increase by the Federal Reserve decreased. That sent the Sensex’s 14-day relative strength index to 71, a level some investors see as a signal that further gains may be capped.

“The rally has been superb, so some cooling off is expected," said Arun Kejriwal, a director at Kejriwal Research & Investment Pvt. in Mumbai. “Some investors may be tempted to book some profits. The focus is now on the Fed meeting, Brexit and how the monsoon progresses."

Monsoon Rains

India’s monsoon, which accounts for four-fifths of the country’s rainfall, reached the mainland in southern Kerala state on Wednesday. The government is counting on above-normal precipitation rainfall this year to help control food prices, boost farm production and ease a drinking water shortage caused by back-to-back droughts.

The U.K. will hold a referendum on whether it will stay in the European Union on June 23, while the Fed next reviews monetary policy on June 15. Traders pared bets on a U.S. rate increase by July to 18 percent from 53 a week ago, futures contracts show.

Dr Reddy’s retreated 2.1 percent, the most since May 6. India’s second-largest drugmaker said a U.S. consumer safety watchdog has asked the country’s Department of Justice to take action for the company’s alleged failure to comply with packaging and reporting rules. Dr. Reddy’s has complied with all legal requirements and will defend itself against the allegations, according to an e-mailed statement from the Hyderabad-based company.

Infosys Bumps

Infosys, which has the highest weighting on the Sensex, plunged 4.3 percent, the biggest drop in about nine months. The company’s Chief Operating Officer U.B. Pravin Rao said Wednesday the company expected some “short term, quarterly bumps" in sales growth. The stock was the worst performer on the Sensex.

Housing Development Finance lost 2 percent, the most since May 19. Asian Paints Ltd. slid 1.9 percent. ITC fell 2.4 percent, its first drop this week. Hindustan Unilever retreated 2.3 percent, while Hero MotoCorp Ltd. declined 2.6 percent.

Overseas funds have pumped $471 million into Indian shares this month through June 7, exceeding $386 million of net purchases in May. The Sensex has rallied 17 percent from this year’s low on Feb. 11 and is trading at 16.5 times 12-month forward earnings, compared with a five-year average of 14.3. The MSCI Emerging Markets Index trades at 12.2 times.

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