Sensex down by 800 points;10-day rally on IT stocks comes to an end

The Sensex is trading at 21 times estimated earnings, which is two standard deviations above its five-year average.

India’s stock benchmark declined, set to snap a 10-day advance, as investors weighed the quality of local earnings and fading chances of a US stimulus deal before next month’s election.

The S&P BSE Sensex fell 2% to 39,974.52, after rising as much as 0.6%. (PTI)

The S&P BSE Sensex fell 2% to 39,974.52 as of 2:08 p.m. in Mumbai, after rising as much as 0.6%. The measure completed its best run of gains since 2007 on Wednesday. The NSE Nifty 50 Index dropped 1.8% after seesawing earlier today. Most stocks in Asia declined, with a region-wide gauge losing 1.1%.

The market will be “volatile because valuations have moved above long-term average multiples,” Shibani Kurian, head of equity research at Kotak Mahindra Asset Management Co., said in an interview with Bloomberg Television. The Sensex is trading at 21 times estimated earnings, which is two standard deviations above its five-year average.

As earnings season gathers pace, two of the three Nifty 50 firms that have reported so far missed analyst estimates for their quarterly results. Infosys Ltd. on Wednesday posted results that beat profit expectations and raised its annual sales forecast.

On the macro front, the monthly trade report is due later today. Both the Sensex and Nifty 50 are close to erasing year-to-date losses, supported by inflows of about $1.1 billion into Indian equities from foreign buyers this month.

The yield on the 10-year government bond was little changed at 5.90%. The rupee weakened 0.1% to 73.3575 per dollar.