Indian stocks may extend their three- day, 14 percent slump as some overseas investors judge local shares expensive given the outlook for earnings.
Stocks tumbled 10 percent at one point yesterday, sparking a one-hour halt on both the Mumbai Stock Exchange and the National Stock Exchange. Shares recovered from their lows of the day after the government said banks would help investors meet calls for cash. The Sensitive Index, or Sensex, ended down 4.2 percent to 10,481.77.
“When there are worries about markets around the globe, clearly the markets that have gone up the most are going to get hit the most,” said Arjun Divecha, who manages the $10 billion GMO Emerging Markets Fund in Berkeley, California. “For a year or so we’ve felt the market is overvalued.”
The Sensex rose 95 percent in the 12 months to May 10, when it closed at a record 12,612.38. The benchmark has dropped 17 percent since then. The measure is valued at 17 times estimated earnings, more than the 12.9 times for the Morgan Stanly Capital International Emerging Markets index, according to Bloomberg data.
“It’s still very expensive,” said Peter Hill, who manages the $218 million Highmark International Opportunity Fund in Foster City, California. “The fundamentals are pretty good for India, and it’s at an early stage of getting on this growth wagon. It’s not so much the fundamentals as over speculation in the stock market.”
Reliance Industries Ltd., which owns the world’s third biggest refinery, yesterday dropped 44.95 rupees, or 4.6 percent, to 931.6. Infosys Technologies Ltd., the country’s second-biggest software maker, fell 148.05 rupees, or 5 percent, to 2826.55. The two stocks account for about a fifth of the key index’s weight.
`Next Risk’
Overseas investors sold $302.9 million more of Indian equities than they bought on May 19, according to figures released late yesterday from the Securities & Exchange Board of India, the stock market regulator. That’s the most they have sold in almost a year.
If people who have put their money in mutual funds “start getting nervous, then you could see a second wave of selling pressure,” said David Chatterjee, who helps manage $700 million of investment in India for Pictet Asset Management in London. “That’d be the next risk.”
Finance Minister Palaniappan Chidambaram said yesterday there’s no cash problem in the stock market and banks will give “ample funds” to pay for shares. The Indian government, which controls nine of the country’s 10 biggest lenders, said yesterday that money will be available from banks to cover demand that may arise from so-called margin calls.
Source: http://www.bloomberg.com/apps/news?pid=10000080&sid=aCwd0JykgDgg&refer=asia
