MUMBAI: Indian equities had their biggest drop in almost two months, erasing a weekly advance, as some investors judged recent gains excessive. Banks and industrials led the retreat.
The BSE India Sensitive Index, or Sensex, retreated 1.1 per cent, the most since October 30, to 19,242 at the close. The gauge had climbed to the highest level since April 2011 on December 19. State Bank of India, the biggest lender, declined 2 per cent. Copper producer Sterlite and aluminum maker Hindalco ended a five-day, more than 10 per cent rally.
The Sensex has risen 25 per cent this year, headed for its biggest annual jump since 2009, as government steps to open the economy to offshore investment lured foreigners. The gauge's valuation is near the highest level since April, data shows. Emerging-market stocks dropped the most in six weeks amid concern stalled US budget standoff threatens the outlook for exporters' earnings.
"The market had run-up significantly, with some stocks rallying as much as 20-25 per cent; a correction was waiting to happen," Chokkalingam G., chief investment officer at Centrum Broking in Mumbai, said by phone.
"Concerns on the US fiscal cliff gave some investors the excuse to book profits."
US House Republican leaders cancelled a vote that would permit higher taxes amid stalled budget talks to avert more than $600 billion in tax increases and spending cuts set to start on January 1. The Republicans are seeking to reduce the nation's deficit with spending cuts, while US President Barack Obama wants to raise taxes for top earners.State Bank of India shed 2 per cent to Rs2,334.45. ICICI Bank declined 1.4 per cent to Rs1,123.9. HDFC Bank lost 1.1 per cent to Rs676. The BSE Bankex Index of 14 lenders lost 1.3 per cent, its steepest drop since November 16.
Sterlite tumbled 3.3 per cent to Rs116.95, ending a five-day 11 per cent rally. Hindalco decreased 2.6 per cent to Rs129.3, paring this week's advance to 7.8 per cent. Jindal Steel & Power tumbled 3.5 per cent to Rs454.55.
The BSE India Metal Index slid 1.8 per cent, paring this week's surge to 4.4 per cent.
Prime Minister Manmohan Singh began a campaign in September to revive economic growth from the weakest levels since 2009 and avoid a credit-rating downgrade by paring fuel subsidies, and opening up retailing and aviation to foreign investment. The passing of a banking bill on December 18 was the latest in the series of such measures.The Sensex is valued at 15.2 times estimated earnings, compared with the MSCI Emerging Markets Index's 12 times, data shows.
Volumes in the gauge exceeded the 30-day average by 24 per cent. Sensex's 30-day volatility was at 10.7, compared to the year's lowest of 9.06 set on November 26.
The BSE Mid-Cap Index retreated 1.5 per cent, the most since July 26, and the BSE Small-Cap Index had the steepest drop in more than two months, the data shows. "The market appears to be in a sort of uncertainty with some kind of year-end fatigue," Amar Ambani, head of research at brokerage IIFL, said yesterday.
The S&P CNX Nifty Index on the National Stock Exchange of India tumbled 1.1 per cent to 5,847.70.
Overseas funds were net buyers of Indian stocks for a 26th straight day on Thursday. Foreign funds have bought a net $23.2 billion of local shares this year, the highest among 10 Asian markets tracked excluding China, data shows.