Mumbai: Indian shares fell 1.1% on Friday as investors took profits on a more than 90% rally since early March, but notched their 14th straight weekly gain for the first time in four years.
The market initially rode a rally across Asia and rose as much as 1.2% after upbeat US and Chinese economic data boosted sentiment. But an unexpected rise in Indian factory output in April scotched any chance for more rate cuts.
“We think monetary policy easing is at an end. Policy rates have come down aggressively and there is excess liquidity in the system,” Goldman Sachs economist Pranjul Bhandari said.
Profit-takers targeted engineering and construction firm Larsen & Toubro, which almost tripled since early March, and government-run State Bank of India that had surged 83 percent in the period.
Leading listed developer DLF Ltd and top mortgage lender Housing Development Finance Corp were the other major losers.
The 30-share BSE index ended down 1.13%, or 173.53 points, at 15,237.94, with 26 stocks declining. The benchmark rose 0.9% on the week. The 50-share NSE index fell 1.17% to 4,583.40.
The index has leapt 83% since 9 March, dwarfing the 26% rise during its 16-week winning streak between May-August 2005. The rally was largely driven by foreign funds who ploughed more than $7.5 billion into the market since mid-March.
Rising optimism about the global economy and hopes for pro-market reforms after the ruling coalition was re-elected last month has also underpinned the market.
The market is up 58% this year, after plunging by more than half in 2008 when foreign investors withdrew $13 billion.
However, there are concerns the run-up is overdone, with valuations not in line with fundamentals.
“Not much aggressive buying like before is seen in the market. Many people are sitting on big profits and looking to cash in,” R. Sriram, a technical analyst at ICICI Securities, said.
“Even though there may be some buying on dips, investors will be cautious and wait for the budget.”
The coalition government, which was voted back with stronger mandate, is expected to pursue investor-friendly reforms in the annual budget in early July to boost growth.
“As the markets gain new heights, investors are now worried whether the rise is too fast to last. We worry as well. But our analysis suggests resistance might be futile,” Subhajit Gupta, head of research at Reliance Equities, said in a note.
“On the back of a sharply improving 2011 earnings that, in turn, should benefit from rising availability and falling cost of capital, we expect the BSE Sensex to rise to 18,000 in the next 200 days.”
India’s industrial output rose in April, beating forecasts for a fall, driven by a pick-up in domestic demand that analysts said confirmed nascent signs of recovery and an end to the central bank’s rate-cutting cycle.
Factory output in April rose 1.4% from a year earlier, recovering from a revised fall of 0.8% in March and bettering forecasts for a decline of 0.2%, adding to signs from China that activity in emerging economies was picking up.
“Output growth almost certainly bottomed on a year-on-year basis in March and we are looking for a healthy upward trend to develop from here,” HSBC economist Robert Prior-Wandesforde said.
Larsen & Toubro shed 2.6% to Rs1,582.45, while State Bank of India dropped 3.5% to Rs1,637 and HDFC slipped 2.8% to Rs2,281.40. DLF fell 5.8% to Rs368.50 after gaining 185% since early March.
Energy giant Reliance Industries, which has the most weight in the main index, bucked the trend and rose 2.5% to Rs2,356.80.
Sesa Goa rose as much as 12.2% to Rs215.50, its highest since 2 June last year, after it acquired the mining assets of Dempo Group in the western state of Goa for Rs1,750 crore ($368 million). Shares ended up 5.6% at Rs202.90.
“We are encouraged by Sesa’s proposed acquisition of Dempo’s mining assets and by management’s ability to deliver on its promise to utilize its strong balance sheet to enhance Sesa’s size and competitiveness,” Morgan Stanley analyst Vipul Prasad said.
The deal could add value to the firm, “especially due to opportunities to share infrastructure in Goa and possibility of further exploration by Dempo”, he wrote in a note.
In the broader section, losers led gainers by almost 3 to 1 on relatively moderate volume of 564.5 million shares.