Stocks pare weekly climb as inflows spur valuation concern

BSE Sensex drops 104.91 points, or 0.36%, to end at 28,668.22; Nifty falls 35.90 points, or 0.40% , to 8,831.55


A file photo of BSE. Photo: Hemant Mishra/ Mint
A file photo of BSE. Photo: Hemant Mishra/ Mint

Mumbai: Indian stocks dropped, with the benchmark index paring a weekly gain, as concerns about equity valuations resurfaced after global funds extended their purchases of local assets.

Foreigners bought $610 million of shares this week, the most since a similar period ended July 29, as global central bank stayed supportive of growth. They’ve bought $4 billion of the nation’s equities this quarter, putting stock gauges on course for their first quarterly climb since March 2015.

The Sensex is valued at 16.4 times projected 12-month earnings, near the most expensive level since January 2011, after rebounding 25% from a low reached in February. A gauge for medium-sized companies trades at 33 times reported earnings, higher than the five-year mean of 21. The 12-month trailing price-earnings ratio for the S&P BSE SmallCap Index is a record 80.5 times.

“The concern on global liquidity has eased but the worry is on valuation,” Chokkalingam G., managing director at Mumbai-based Equinomics Research & Advisory Pvt., said by phone. “We’re advising clients to book profits in small- and mid-cap stocks, where valuations have become rich, and move into index stocks.”

Global stocks, bonds and commodities rose this week and the dollar weakened as the Federal Reserve scaled back its tightening plans and the Bank of Japan strengthened its commitment to reviving inflation. Indonesia cut rates for the fifth time this year, while New Zealand’s central bank signalled further easing. Lower borrowing costs in the US and other developed nations have bolstered demand for emerging-market assets. Bloomberg

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