Breaking News

Tweet TWEET

Stocks Rise to Two-Month High as Insurance Rule May Boost Equity Purchases

India’s stocks rose to a two-month high on speculation a new government rule will boost investment in equities and as China’s move to end the yuan’s fixed rate to the dollar boosted confidence in the global economic recovery.

Larsen & Toubro Ltd., the nation’s largest private-sector infrastructure company, surged to the highest in more than two years. India will allow life insurers to offer unit-linked plans, which may boost their investments in equities. Sterlite Industries (India) Ltd., the biggest copper and zinc producer, climbed the most in a year as metal prices rallied.

“The uncertainty over insurance products is over, which is positive for the markets,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi, southern India. “The news from China has boosted investor confidence.”

The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 305.73, or 1.7 percent, to 17,876.55, its highest since April 9. The S&P CNX Nifty Index on the National Stock Exchange rose 1.7 percent to 5,353.30. The BSE 200 Index increased 1.7 percent to 2,252.69.

Larsen & Toubro climbed 2.1 percent to 1,836.35 rupees, its highest since February 2008. ICICI Bank Ltd., the country’s second-biggest lender, surged 3.5 percent to 899.8 rupees. Jaiprakash Associates Ltd., a builder of dams, roads and bridges, jumped 3.7 percent to 133.5 rupees. India’s decision to allow life insurers to offer unit-linked plans may raise insurance companies’ investments in stocks to $25 billion this fiscal year, SMC Capitals Ltd. said.

Insurance Funds

Larsen’s stock gain was also helped by its plans to double sales from its electrical and electronics division to 80 billion rupees ($1.8 billion) by 2015, the Business Standard reported, citing R.N. Mukhija, president of operations. The company will invest over 10 billion rupees in manufacturing facilities to meet the target and grow by 15 percent a year, according to the report.

The increase of as much as 48 percent in insurance company investments will mainly come from the primary market and from buying shares in public offerings of state-owned companies, said Jagannadham Thunuguntla, chief strategist at New Delhi-based SMC Capitals. His estimate is 19 percent higher than the average of $21 billion for the fiscal year starting April 1 by ICICI Prudential Insurance Co., Bajaj Allianz Life Insurance Co., SBI Life and Birla Sun Life Insurance Co.

Metal Prices

Sterlite gained 7.9 percent to 182.9 rupees, its steepest increase in almost 13 months. Copper advanced the most in a month on the London Metal Exchange. Sterlite also advanced after each share was split into two, increasing liquidity by making the stock cheaper to trade.

Hindalco Industries Ltd., the biggest aluminum producer, increased 5.7 percent to 153.6 rupees. Tata Steel Ltd., the biggest producer of the alloy, jumped 6.6 percent to 504.8 rupees.

Metal prices climbed after China said it may allow the yuan to move higher against the dollar, boosting demand for products in the world’s third-largest economy. A stronger yuan may help policy makers stanch inflation without curbing economic expansion.

Hindalco shares also increased after the Economic Times reported that the company’s unit Novelis Inc. may bid for the rolled products division of Rio Tinto Alcan. A Hindalco spokesman declined to comment on the report, which cited people it didn’t identify, and there was no response to an e-mail sent to Rio Tinto Alcan, the newspaper said.

Fund Flows

Overseas funds bought a net 5.44 billion rupees of Indian equities on June 17, increasing total purchases of the stocks this year to 255.2 billion rupees, according to the nation’s market regulator.

Inflows from overseas reached a record 834.2 billion rupees in 2009, exceeding the high set two years ago in local currency terms, as the biggest advance in 18 years lured foreign funds. They sold a record 529.9 billion rupees of shares in 2008, triggering a record annual decline.

Indian mutual funds’ equity assets under management are poised to grow by as much as 30 percent annually over the next five years, according to the Boston Consulting Group.

Economic growth, a young population and a high savings rate will drive growth, Alpesh Shah, a Mumbai-based director at Boston Consulting, said today. Indian mutual funds manage about 2 trillion rupees in stocks, Shah said.

India’s stocks were cut to “underweight” from “overweight” today at BNP Paribas, which set a 12-month estimate for the Sensex of 19,700. Reversing a yearlong call to favor Indian stocks, the brokerage raised China’s stocks to “overweight” from “neutral,” predicting a 36 percent rally.

“The change in preference for China over India reflects our view that the Indian market has priced in many of the positive factors we have been highlighting,” BNP Paribas analysts led by Clive McDonnell said in a report today. “While these structural factors have not gone away, pessimism over the prospects for China have opened up a valuation gap.”

The following were among the most active on the exchange:

Edelweiss Capital Ltd. (EDEL IN) soared 19 percent to 500.7 rupees, its biggest one-day advance since November 2008, after the Mumbai-based brokerage and financial services company said it will on June 24 consider a stock split and free share plan.

Hindustan Motors Ltd. (HM IN) jumped 20 percent to 24.6 rupees, its steepest climb since November. The carmaker is in talks with General Motors Co. and other automakers to sell a stake, CNBC television reported.

P. Balendran, a spokesman for GM India denied the report. Ravi Kathuria, a spokesman for the C.K. Birla group, the founder of Hindustan Motors, declined to comment on “speculation.”

Infrastructure Development Finance Co. Ltd. (IDFC IN) gained 2.5 percent to 173.15 rupees. The company plans to take a global fund manager as a strategic partner in its asset management unit, the Economic Times newspaper reported, citing a company executive. Infrastructure Development’s Managing Director Rajiv Lall wasn’t immediately available at his office telephone for comment on the report.

Schrader Duncan Ltd. (SDL IN) gained 6.5 percent to 176.7 rupees, its highest close since January. Schrader Bridgeport International Inc., which controls the tire tube valve maker, is in talks with J. P. Goenka, an Indian industrialist, to buy his stake, Press Trust of India reported.

Sun Pharmaceutical Industries Ltd. (SUNP IN) climbed 2.4 percent to 1,754.5 rupees. The nation’s largest drugmaker by market value got approval from the U.S. Food and Drug Administration to market a generic version of Pfizer Inc.’s Xanax, according to its e-mailed statement.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.