Indian stocks dropped for the first time in six days as some investors bet the rally that pushed up the benchmark index to a seven-month high may have outpaced the recovery in earnings growth.
The Sensex fell 57.64 points, or 0.22%, to close at 26,667.96, after changing direction at least eight times. Tata Motors, owner of Jaguar Land Rover, jumped the most since September 2013 after its quarterly profit tripled. Aurobindo Pharma climbed the most in a month after its results matched estimates, while Sun Pharmaceutical Industries retreated the most in 10 months after earnings lagged behind estimates.
Anyone in the stock market following the conventional ‘sell in May and go away’ cliche was proven wrong as the Sensex rallied 4.1% for its best performance among Asian indexes.
A recovery in company earnings after declines in four of the last five quarters and forecast for above-average rain following back-to-back droughts has lifted investor confidence. The gains sent the index’s 14-day relative strength index to 69, the highest level in a year and near the 70 threshold that some investors see as a signal to sell.
“The index is likely to consolidate, given the rally has been been quick,” Lancelot D’Cunha, chief executive officer at Crest Wealth Management, said by phone from Mumbai. “Some of the key earnings this season have been better than estimates, and that, coupled with a good monsoon forecast, has boosted sentiment.” He is advising investors to buy shares of consumer companies linked to the rural economy.
Around 66% of the companies in the NSE Nifty 50 Index posted earnings in the March quarter that exceeded or matched estimates. This compares with 52% in the three months ended December, data compiled by Bloomberg show. Sales for Sensex companies increased 7% year-on-year after five straight quarters of declines, the data show.
Tata Motors surged 9.1% to its highest level since June 2, 2015. Fourth-quarter profit rose to Rs51.8bn ($771mn) in the March quarter, the company said after market hours on Monday. That compares with the Rs35.3bn average of 25 analysts’ estimates compiled by Bloomberg.
State Bank of India rose its highest level since January. The stock has rallied 22% in six days through yesterday. The lender last week reported a bad-loan watch list that was smaller than its closest rivals.
Aurobindo Pharma soared 4.1%, paring this year’s loss to 10%. Tata Steel increased 3.5%, the most since April 20. Maruti Suzuki India, the largest carmaker, advanced 2.3% to its highest level since January 19.
Sun Pharmaceutical plunged 6.1%, the most since July 21. Net income rose about 93% from a year earlier to 17.1bn rupees, lagging an average estimate of 19.1bn rupees according to 19 analysts surveyed by Bloomberg. Overseas funds bought $58mn of local stocks on May 27, taking the month’s inflow to $383mn, the highest among eight Asian markets tracked by Bloomberg.
They bought $585mn in April and $4.1bn in March, which was the most in three years.
“While there have been a few earnings disappointments, money is coming in from funds who have a good bottom-up understanding of Indian markets, investors who know there are opportunities in select companies,” Arvind Sanger, managing partner at Geosphere Capital Management, told Bloomberg TV India today.
The Sensex has climbed 2.1% so far this year and is valued at 16.5 times 12-month projected earnings, compared with its five-year mean of 14, and a multiple of 11.6 for an index of emerging markets.
Meanwhile the rupee yesterday weakened against the US dollar.
The currency closed at 67.26, down 0.14% from its previous close of 67.17. The rupee opened at 67.16 per US dollar and touched a high and a low of 67.11 and 67.33, respectively.
Gross value added (GVA) would have grown by 7.2% in the March quarter compared with 7.1% in the December quarter, while GDP growth will be at 7.5% from 7.3% a quarter ago, a Bloomberg poll showed.
Fiscal deficit of Rs5.32tn came in narrower than the revised estimate of Rs5.35tn, Controller General of Accounts says in a statement on website.