Mumbai: Indian Stocks fell for the first time in six days as investors judged recent gains to be excessive in relation to earnings potential.
Cipla Ltd, the country’s second-biggest drugmaker, plunged the most in a more than a decade after reporting a profit that missed analyst estimates, prompting Credit Suisse Group to lower its rating on the stock. Reliance Industries Ltd, which also reported earnings late on 26 April 2007, slumped following a rating cut at Deutsche Bank AG.
“Earnings downgrades unfortunately also lead to price-to-earnings downgrades,” said Jayesh Shroff, who helps manage about $4 billion (Rs16,000 crore) in assets for SBI Funds Management Ltd in Mumbai. “Expectations on earnings tend to run ahead of what companies can actually deliver and any disappointment isn’t taken well.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 320.30 points, or 2.3% to 13,908.58. It was the biggest fluctuation among equity markets included in global benchmarks.
The S&P/CNX Nifty Index on the National Stock Exchange dropped 94.35 points, or 2.3% to 4,083.50.
The Sensex has jumped 6% in the past month and the Nifty 6.8%, driving their relative strength indexes to 69 and 70, respectively, as of yesterday’s close. RSI indexes are based on share movements in the previous 14 days and readings of 70 or more indicate to some analysts that stocks are set to fall.
“We are seeing a pause after the rally,” said Sandeep Neema, who helps manage about $100 million of equities at J.M. Financial Mutual Fund in Mumbai.
Cipla fell Rs36.15, or 14% , to Rs217.1, its biggest decline since February 1994. The drugmaker said on 26 April 2007 that its profit dropped 34% to Rs126 crore in the quarter ended 31 March, less than the Rs195 crore estimate of five analysts surveyed by Bloomberg News.
Credit Suisse Group analyst Neelkanth Mishra lowered the brokerage’s rating on Cipla to “neutral” from “outperform,” according to a research note published today.
Reliance, India’s most valuable company, fell Rs58.55, or 3.7% , to Rs1,538.2. The company on 26 April said profit rose 14% in the past quarter to Rs2,850 crore. Deutsche Bank lowered its recommendation on Reliance’s stock to “hold” from “buy,” citing valuation concerns. The stock has jumped 22% this year.
“The earnings were fairly good, but the stock’s had a phenomenal run, so we are seeing investors taking a pause,” Neema said.
Overseas investors bought a net Rs962 crore worth of shares on April 25, according to the latest information provided by the Securities & Exchange Board of India on its Web site.