Indian stocks held near a six-week high on speculation the central bank may cut interest rates to boost growth, and after some company earnings beat estimates.
Larsen & Toubro Ltd., the nation’s largest engineering company, and Maruti Suzuki India Ltd. (MSIL), the biggest carmaker, erased losses after their earnings report. ICICI Bank Ltd. (ICICIBC), the second-biggest lender, advanced for the third day. Reliance Industries Ltd. (RIL), the owner of the world’s largest oil-refining complex, fell the most in three weeks.
The BSE India Sensitive Index (SENSEX), or Sensex, rose 0.1 percent to 16,751.73 at the 3:30 p.m. close in Mumbai, after changing direction at least 30 times. Inflation slowed in December to a two-year low after seven interest-rate increases in 2011 cooled demand, giving the central bank scope to keep rates on hold for a second straight meeting tomorrow. The Sensex lost 25 percent last year on concern a falling rupee and high borrowing costs will exacerbate the effects of the European crisis on earnings.
“Growth will bottom out and start improving, interest rates will start to come down, the rupee has begun appreciating and inflation has started cooling off,” Nilesh Shah, president strategic initiatives at Axis Bank Ltd. (AXSB) in Mumbai, said in an interview with Bloomberg UTV today. “This macro environment will be positive for earnings going forward.”
The Reserve Bank may keep the benchmark repurchase rate at 8.5 percent tomorrow, all 21 economists in a Bloomberg survey said. It raised the rate by a record 13 moves from March 2010 before pausing in December. While benchmark inflation slowed to a two-year low of 7.47 percent last month, it is still higher than the so-called BRIC nations.
“While everyone is saying that there should be a cut in the interest rate, my feeling is that collectively the market will be willing to give three-to-six months time to the Reserve Bank before the actual cuts begins,” Axis’s Shah said. “Core inflation is still running and it is too early to pronounce a victory” over consumer-price increases, he said.
Reliance, which has the biggest weighting on the Sensex, retreated 2.7 percent to 771.55 rupees, halting a four-day, 11 percent rally. Profit fell 14 percent to 44.4 billion rupees ($884 million) in the December quarter as a global economic slowdown curbed fuel demand. Earnings missed the 45.6 billion rupee median estimate of 29 analysts surveyed by Bloomberg.
The company plans to buy back 120 million shares at 870 rupees each, for a total of as much as 104.4 billion rupees.
“Investors are disappointed with the results but we don’t see a big fall due to the buyback announcement,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd., said by phone from Kochi.
Maruti Suzuki advanced 5.2 percent to 1,160.65 rupees, reversing a slide of as much as 3 percent, after its earnings report. Third-quarter profit plunged 64 percent to 2.06 billion rupees, the smallest since the quarter ended September 2004 and less than the 2.17 billion-rupee median of 32 analyst estimates compiled by Bloomberg.
“The worst is over and we will surely improve from these levels,” Chief Financial Officer Ajay Seth told analysts today.
Larsen & Toubro, the biggest builder of power networks and airports, added 0.2 percent to 1,277.3 rupees, reversing a fall of as much as 3.8 percent. Third-quarter profit rose 18 percent to 9.92 billion rupees, beating the 8.69 billion-rupee median of 23 analyst estimates compiled by Bloomberg.
Sterlite Industries (India) Ltd., the nation’s biggest copper producer, plunged 5.4 percent to 107.9 rupees after it unexpectedly reported a 17 percent decline in third-quarter profit because of higher costs, declining metal prices and a foreign-exchange loss.
Six out of 13 Sensex companies that have posted December quarter earnings missed analyst estimates. Forty percent lagged in the September quarter and 47 percent in the previous three months. Forecasts for Sensex companies for the year to March have declined 8.7 percent to 1,150 rupees per share, the most since the year ended March 2009, the data.
“When analysts say that there will be no growth they’re probably looking far more backward than forward,” said Axis’s Shah. “At some point, analysts will start becoming positive and start looking forward. That’s when the earnings upgrades can occur. It can happen over the next six to 12 months.”
ICICI Bank climbed 1.7 percent to 856.75 rupees, extending its three-day rally to 11 percent. State Bank of India gained 0.4 percent to 1,940.5 rupees, advancing for a tenth day.
Foreign funds bought a net $138.7 million of Indian stocks on Jan. 19, increasing their investment in equities so far this year to $1.2 billion, data from the regulator show. They sold $512 million of equities in 2011, compared with a record inflow of $29.4 billion in 2010.
“Foreign funds have pumped in almost the double the amount they withdrew last year and these kind of flows would not have happened unless their outlook towards India has changed,” said Axis’s Shah. “They are realizing that probably things in India are not as bad as they sound and are putting money where their mouths are.”
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