Indian stocks dropped, paring a monthly advance, amid concern that the recent rally may have outpaced the outlook for earnings growth and as most Asian equities decreased after the Bank of Japan’s policy decision.
ICICI Bank had the steepest fall in more than a month before its earnings, the worst performance on the S&P BSE Sensex. Bharti Airtel decreased the most in two weeks. Larsen & Toubro, the nation’s engineering firm, retreated for a second day before its June-quarter results.
The Sensex declined 0.6% at the close, falling from a one-year high reached on Thursday. The gauge has rallied 4% this month, pushing up its valuations to a 15-month high. That leaves little room for further upside if corporate earnings disappoint, according Taurus Asset Management Co.
“Stocks are not going to go up fast as earnings are not coming along and valuations are stretched,” R K Gupta, managing director of Taurus, which oversees $590mn, said by phone from New Delhi. “There’s also a bit of disappointment from the size of Japan’s stimulus.” Gupta is advising clients to buy stocks on declines.
The BoJ almost doubled its target for purchases of exchange-traded funds to ¥6tn ($58bn) and expanded a dollar-lending program to $24bn. The authority kept its annual target for enhancing the monetary base at ¥80tn, done mainly through an equivalent increase in government bond holdings. The stimulus wasn’t as much as most analysts had been expecting.
Indian equities capped their biggest monthly climb since May as foreign funds extended their purchases of local shares and optimism that the national sales tax bill, the nation’s biggest economic reform in decades, will be passed by Parliament soon bolstered investor sentiment. Global funds bought $300mn of stocks on Thursday, the highest single-day inflow since 31 March, taking the month’s inflow to $1.7bn.
The Sensex trades at 16.4 times 12-month projected earnings, the most expensive level in 15 months.
Meanwhile the rupee yesterday strengthened against the US dollar from its previous close, tracking the gains in its Asian peers. This was the fourth consecutive session when the rupee closed higher.
The currency closed at 66.99 a dollar—a level last seen on July 14, up 0.06% from its previous close of 67.04. The rupee opened at 67.04 a dollar and touched a high of 66.96, a level last seen on July 15. Asian currencies closed higher. The yen surged yesterday after the Bank of Japan made minor tweaks to its stimulus programme that disappointed dealers who had expected a big announcement to kickstart growth in the world’s number three economy.
The central bank said it would boost its exposure to riskier investments, but left a massive ¥80tn ($772bn) annual bond-buying programme unchanged.
The Japanese yen was up 1.9%, South Korean won 0.38%, Singapore dollar 0.3%, China renminbi 0.11%, Thai baht 0.06%, China offshore spot 0.05%. However, the Malaysian ringgit was down 0.41%, Philippines peso 0.13%, Indonesian rupiah 0.11%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 96.215, down 0.54% from its previous close of 96.211.
So far this year, the rupee is down 1.26%, while foreign institutional investors have bought $4.61bn in equity and sold $825.30mn in debt markets.
India’s 10-year bond yield closed at 7.17%—a level last seen on 30 May 2013, compared with Thursday’s close of 7.191%.