Indian Stocks Beat Top 20 Markets in Second Quarter on Econonic Expansion

Indian stocks climbed, boosting the benchmark index by the most among the world’s 20 largest markets in the second quarter, as a government official said the lifting of fuel-price caps will halve oil company losses.

Oil & Natural Gas Corp., the country’s biggest exploration company, completed a 20 percent advance in the three months ended June. Kaushik Basu, chief economic adviser at the finance ministry, said freeing fuel prices from government control will also lower pump prices within six to nine months.

The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 166.81, or 1 percent, to 17,700.90. The gauge also climbed 1 percent in the three months ended June, its longest quarterly winning streak since at least September 1979, according to data compiled by Bloomberg. The Sensex has climbed in every quarter since Prime Minister Manmohan Singh in May 2009 led the Congress party to its biggest electoral victory in two decades, pledging to cut a fiscal deficit and boost growth.

“The oil reform shows the government is committed to fiscal prudence,” said Gopal Agrawal, head of equities at the local office of Mirae Asset Financial Group, which has $2.5 billion invested in India. “Everybody is looking at India very positively because even in the worst financial crisis, its growth was held at a higher level.”

The S&P CNX Nifty Index on the National Stock Exchange rose 1.1 percent to 5,312.50. The BSE 200 Index increased 0.8 percent to 2,248.06. Indian equities climbed even as the MSCI Emerging Markets Index declined to its lowest level in almost three weeks, as an unexpected drop in U.S. consumer confidence added to concern sparked by the downward revision of an economic indicator for China yesterday.

India’s $1.2 trillion economy expanded 8.6 percent in the three months through March from a year earlier, the fastest pace after China and Brazil among major economies. Finance Minister Pranab Mukherjee said June 22 the nation’s annual economic growth may exceed 10 percent in the next five years.

Profit Growth

Mirae’s Agrawal expects earnings of Sensex companies to climb as much as 23 percent in the year ending March. That would be the best profit growth in three years, according to data compiled by Bloomberg.

The Sensex is trading at 17 times estimated profit, the highest in Asia excluding Japan and the most expensive among the BRIC markets, which also include China, Brazil and Russia.

“Locally, everything seems to be right,” said Rahul Jain, head of India sales at Prabhudas Lilladher Pvt. in Mumbai. “The economy seems to be doing well, corporate results seem to be better, and that’s why the market is going at a premium. We could see earnings upgrades for oil companies.”

Indian stocks may draw more foreign funds in the second half as the nation’s economic growth makes it one of “few places” to invest, Navneet Munot, who oversees about $8.2 billion of assets as chief investment officer in Mumbai at SBI Funds Management Pvt., said in an interview June 24.

Overseas Funds

Overseas funds increased purchases of Indian equities by 32 percent to a net $6.7 billion rupees in the first half of 2010 from a year earlier, according to data compiled by Bloomberg. Inflows surged to 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.

Reliance Industries Ltd., owner of the world’s largest refining complex, rose 2.1 percent to 1,089.85 rupees. The company is close to reaching an agreement to form a financial- services venture with DE Shaw & Co., the Economic Times said, citing two people it didn’t identify. Manoj Warrier, a spokesman for the company, declined to comment when reached by phone today.

Separately, India plans to offer shale-gas areas for exploration for the first time, S.K. Srivastava, director general of hydrocarbons, India’s exploration regulator, said in an interview in New Delhi today.

State Control

Oil & Natural Gas climbed 1.1 percent to 1,320.8 rupees, taking gains in the past four days to 11 percent. India’s government on June 25 freed gasoline prices from state control and increased rates on diesel, kerosene and cooking gas. Indian Oil Corp., the nation’s second-biggest refiner, added 2.5 percent to a record 403.1 rupees.

“Oil and gas companies are going to show robust growth,” Sadanand Shetty, who manages $75 million in equities at Taurus Asset Management Co. in Mumbai, said in an interview yesterday. “Price decontrol will really be a big kicker. The average increase in earnings for oil companies would be in the range of 30 percent to 50 percent.”

Bharat Petroleum Corp. climbed 4.3 percent to 662.75 rupees, and Hindustan Petroleum Corp. jumped 7.7 percent to 469.5 rupees.

Investment Banking

Kotak Mahindra Bank Ltd., owner of India’s largest securities firm, advanced 3.7 percent to 770.95 rupees. Tokyo- based Sumitomo Mitsui Financial Group Inc. will pay 13.7 billion rupees ($295 million) for a stake in Kotak Mahindra and said the two companies will cooperate in investment banking.

The deal gives Sumitomo Mitsui, Japan’s second-largest bank by market value, a toehold in a country where the value of stock sales more than tripled in the first half from a year earlier.

Maruti Suzuki India Ltd., the maker of half the cars sold in India, rose 2.5 percent to 1,423.75 rupees, reversing two days of losses, before its monthly sales results. “The expectation is that the numbers will be quite good,” Prabhudas Lilladher’s Jain said. Most Indian automakers will post June sales tomorrow.

Tata Motors Ltd., the biggest truckmaker and owner of Jaguar Land Rover Ltd., added 1 percent to 778.5 rupees. Mahindra & Mahindra Ltd., the largest maker of sport-utility vehicles and tractors, climbed 2.2 percent to 627.35.

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

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