Most stocks fell amid concern the rally in the benchmark index to a one-year high isn't backed by growth in earnings. Consumer companies gained as Prime Minister Narendra Modi's government inched closer to getting clearance for the passage of the unified sales tax bill.
The benchmark S&P BSE Sensex ended 0.1 per cent lower. The gauge's 7.5 per cent climb this year has left it trading at 16.4 times 12-month estimated profits, a 15-month high. That leaves it with little room for further gains in the near term, according to IDBI Capital Market Services. "The market is consistently facing resistance at higher levels, which signals fatigue," said A K Prabhakar, head of research at IDBI Capital.
"Corporate earnings are also not providing the necessary comfort."
Shares rose when trading began amid rising hopes of the GST bill's passage this week. The main opposition party will stop blocking the GST Bill, a person familiar with the matter said Monday, rekindling optimism that a decade-long wait for one of India's biggest economic reforms is almost over. The government is due to present the bill amending the constitution to lawmakers on Wednesday.
The tax, which is estimated to boost economic growth by as much as 2 percentage points, is now the closest it's ever been to clearance. First proposed in 2006, the legislation had been blocked for about a year in the upper house of parliament, where Modi lacks the two-thirds majority needed for approval.
ITC rallied 4.1 per cent to to the highest level since February 2015, while Marico surged 4.4 per cent to a record. Gati, Gateway Distriparks and SKS Logistics paced gains among companies likely to benefit from the goods and services tax.
"Fast-moving consumer goods makers are one of the biggest beneficiaries from a sector point of view due to GST, while services sector may take a hit," Abhimanyu Sofat, founder of AdviseSure Ventures Pvt in Mumbai, said by phone.
The Sensex on Friday capped its fifth month of gains, fueled by $1.7 billion of inflows from abroad in July. Foreigners have been net buyers in every month since March, the quickest pace since November 2014, as above-average rainfall improves the outlook for economic growth and corporate earnings. They bought $98 million of shares on Monday.
