Mumbai: Indian stocks retreated for the first time in four days amid concern the recent gains have outpaced the outlook for earnings growth. The BSE India Sensitive Index, or Sensex, lost 0.6 percent to 19,981.57 at the close. The gauge's 14-day relative strength index, measuring how rapidly prices climbed or fell, was 69.5 on Monday. Some investors see readings above 70 as a signal to sell.
Hindustan Unilever sank 3.3 per cent after India's biggest home-products maker increased royalty payments to its parent and profit missed estimates. GAIL India, the largest gas supplier, dropped for the first time in seven days.
The Sensex has risen 2.9 per cent this year, after jumping 26 per cent in 2012, as government measures to narrow the fiscal deficit prompted foreigners to invest a net $2.7 billion into local shares, almost twice the level than at the same time in 2012, exchange data show. Companies on the gauge are valued at 15.8 times estimated earnings, the most expensive among the Bric nations, data compiled show.
"On a price-earnings multiple basis, India doesn't look that attractive" relative to other emerging markets, including China, Gary Dugan, chief investment officer for Asia and Middle East at Royal Bank of Scotland's wealth management unit, said in an interview today. "India will take its fair share of overseas flows but people will not chase stocks aggressively if market were to go up 10 to 15 per cent in the first quarter."
Brazil's Bovespa Index is valued at 11.7 times estimated profit, Russia's Micex Index at 5.6 times and China's Shanghai Composite Index at 9.9 times. That compares with a multiple of 11 for the MSCI Emerging Markets Index, the data show.
Hindustan Unilever retreated 3.3 per cent to Rs480 the lowest close since August 8. Profit increased to Rs8.71 billion ($162 million) in the three months ended December from Rs7.54 billion a year ago, the company said in a statement today. That missed the Rs8.8-billion median estimate in a survey. The royalty the company pays its parent will increase to 3.15 per cent of revenue in steps through the year ending March 2018 from 1.4 per cent, Hindustan Unilever said.
GAIL India plunged 4.7 per cent to Rs369.95, ending a six-day, 6.5 per cent rally. Tata Motors lost 1.5 per cent to Rs318.55, a third day of declines. State Bank of India, the nation's biggest lender, lost 1.4 per cent to Rs2,464.45, ending a three-day climb.
Aluminum maker Hindalco lost 2.4 per cent to Rs119.75. Tata Steel., the biggest producer of the alloy, dropped 1.3 per cent to 408.7.
The Sensex climbed above 20,000 last week for the first time in two years as the government allowed refiners to raise diesel prices to cut fuel subsidies that have stoked the budget gap, adding to policy measures since September. The steps taken include opening industries such as retail and aviation to more foreign investment, reducing taxes on overseas borrowing and setting up a panel to speed up infrastructure projects.
The measures attracted $24.5 billion of foreign flows into domestic stocks last year, the highest among 10 Asian markets tracked by Bloomberg, excluding China. "We have seen huge flows from September onwards and that tap is going to slowdown a bit," Toral Munshi, head of India equity research at Credit Suisse Wealth Management, said in an interview to Bloomberg TV India yesterday. "In the near term there might be a small correction. If the policy momentum continues, and with that if you get some earnings upgrades, then that will be the key driver for the market."
Only two out of 11 Sensex companies that have reported December-quarter earnings have trailed forecasts. That compares to 40 per cent of index firms in the three months ended September 30, the same as for the three months ended June, data shows. The S&P CNX Nifty Index on the National Stock Exchange of India lost 0.6 per cent to 6,048.50.