Indian Stocks Decline as Rally to 18-Month High Seen Overdone

(Bloomberg) -- Indian stocks retreated the most in a month, led by lenders and automaker, as some investors judged the benchmark index’s advance to an 18-month high was overdone.

Yes Bank tumbled to a one-month low after the lender deferred its $1 billion institutional share-sale plan. The stock capped a three-day, 11 percent decline after reaching a record Tuesday. Tata Motors Ltd. dropped the most in a month after rising 12 percent in the past month. Hero MotoCorp Ltd. and Bajaj Auto Ltd. slid from all-time highs. Consumer companies ITC Ltd. and Hindustan Unilever dropped at least 2.3 percent.

IndexChangeBiggest Move Since
S&P BSE Sensex-0.9%Aug. 10
S&P BSE Bankex-1%Aug. 10
S&P BSE Auto-1.5%Aug. 10

India stocks have rebounded 25 percent from their February lows, sending the benchmark indexes to near record highs, as a wave of global policy easing and the forecast of above-normal rain after a two-year drought lured foreign flows. The Sensex’s price-to-earnings ratio on Thursday climbed to 16.7 times projected 12-month earnings, the most expensive since January 2011. The MSCI Emerging Markets Index trades at a multiple of 12.

Global funds bought $360 million of shares this week, extending the year’s inflow to $6.5 billion, data compiled by Bloomberg show. The purchases are the highest in Asia after Taiwan and South Korea.

“The market paused for breath after a long rally,” Sanjiv Bhasin, executive vice president for markets at Mumbai-based brokerage India Infoline Ltd., said by phone. “A decline could get exaggerated as even conventional defensive sectors, like software, are looking bearish. Investors haven’t adequately hedged their long positions in lenders and consumer stocks.”

A slowing industry growth, a transition into digital services and the uncertainty following Brexit has soured the sentiment for software makers. The S&P BSE IT Index is near a 14-month low, while the Sensex is 3 percent away from its January 2015 life-time high.

Tata Consultancy Services Ltd. tumbled the most in about two years Thursday after saying that some of its U.S. clients are holding back discretionary spending. Mindtree Ltd. Tuesday cut its revenue guidance for the quarter ending on Sept. 30 citing project cancellations.

‘Psychological Resistance’

Meantime, foreign investors’ open interest, or number of contracts outstanding in value terms, rose to 1.797 trillion rupees Thursday, approaching the record 1.88 trillion rupees reached in September 2015. Nifty 9,000 calls slumped 37 percent on Friday, signaling the market “faces a psychological resistance at 9,000 level,” said Devendra Chaturvedi, a Mumbai-based independent market analyst.

The NSE Nifty 50 Index fell 1 percent to 8,866.7 at the close, after coming within 0.5 percent of its March 2015 record high of 8,996.25 on Thursday.

  • Amtek Auto Ltd., the cash-strapped Indian car-parts producer, ended a two-day, 6.4 percent advance after seeking shareholder approval to allow lenders to convert debt into equity up to an amount of 200 billion rupees. Amtek defaulted on 8 billion rupees of bonds in September last year.

  • Steel Authority of India Ltd. slumped the most in four months after the country’s top producer reported a fifth quarterly loss as a global glut continued to weigh on prices.

  • Motherson Sumi Systems Ltd., which makes components for automakers including BMW AG and Ford Motor Co., posted 2.9 percent gain this week. The company is poised to price $300 million share sale at 317 rupees apiece, the low end of a marketed range.

  • Engineers India Ltd. fell for a third time this week after the government offered shares to employees of the state-run company at below-market prices.