Sensex Advances for Seventh Straight Week on Inflows, Enters Bull Market

Indian stocks completed the longest weekly winning streak in almost two years to enter into a bull market after Europe moved closer to a bailout for Greece and overseas investors bought assets in the South Asian nation.

The BSE India Sensitive Index (SENSEX), or Sensex, gained 0.8 percent to 18,289.35 at the 3:30 p.m. close in Mumbai, making it Asia’s best performing stock measure. Bharat Heavy Electricals Ltd. (BHEL), the biggest power-equipment maker, jumped the most since July 2009. State Bank of India, the nation’s largest lender, surged to the highest level since July. Foreign investors bought a net $444 million of Indian stocks in two days to Feb. 16, taking their investment this year to $4.9 billion.

This rally is “liquidity driven,” Manishi Raychaudhuri, head of Indian equity research at BNP Paribas SA, said in an interview with Bloomberg UTV today. “This is typically the kind of inflow India gets over a span of four to five months and not one to two months. It’s been caused by massive inflows into emerging-market funds.”

The Sensex climbed 3.1 percent this week, a seventh consecutive weekly advance, the longest since the period ended April 9, 2010. The index has rallied 18 percent this year, reaching the highest level since August, as inflation slowed, the central bank cut lenders’ reserve requirements for the first time since 2009 and the rupee jumped from a record low.

The 30-company gauge has climbed 21 percent from a December low, surpassing the 20 percent threshold that signals a bull market. The gauge trades at 16.2 times estimated earnings, compared with 10.7 times on the MSCI Emerging Markets Index. The Sensex is the best performer in dollar terms after the Egypt’s EGX 30 Index this year among 93 benchmark indexes tracked by Bloomberg.

Global Economy

Jobless claims in the U.S. dropped to a four-year low and housing starts beat forecasts. European governments considered cutting rates on emergency loans to Greece and using European Central Bank contributions to plug a new financing gap in a second bailout, two people familiar with the talks said.

Bharat Heavy Electricals soared 6.7 percent to 303.55 rupees, its highest level since Nov. 15. Tata Power Co. (TPWR), the biggest electricity generator outside state control, increased 4.1 percent to 118.65 rupees, its third day of advance.

State Bank rose 2.8 percent to 2,417.05 rupees, extending this week’s climb to 11 percent. The stock has soared 49 percent this year, the second-most among the Sensex companies. Nearest rival ICICI Bank Ltd. (ICICIBC) added 1.3 percent to 981.6 rupees.

“We had a clear signal by the Reserve Bank that rate cuts are around the corner,” BNP Paribas’s Raychaudhuri said. “There’s been a gradual turnaround in the policy environment and the attention the government is paying in trying to accelerate the investment climate. It’s difficult to comment whether this is a secular bull run or not, but for the time being this is likely to continue.”

Rate Outlook

The Reserve Bank of India said the majority of external members on an advisory panel recommended an interest-rate cut last month, underscoring rising pressure to counter weakening growth in Asia’s third-largest economy.

Three of the seven external members suggested lowering the repurchase rate by 0.25 percentage point and one advised a half- point cut, the minutes of the Jan. 18 meeting released by the central bank today showed. Three recommended no change.

The interest-rate cycle has peaked after 13 increases between March 2010 and October 2011, Reserve Bank Deputy Governor Subir Gokarn said on Feb. 14 as data showed inflation in January at the slowest in more than two years.

The S&P CNX Nifty Index on the National Stock Exchange of India increased 0.8 percent to 5,564.30. The BSE 200 Index gained 0.7 percent to 2,262.14. Markets are closed on Feb. 20 for a public holiday.

Flows into emerging-market equity funds have reached $19 billion this year, compared with outflows of $34 billion in 2011, Citigroup Inc. analysts led by Markus Rosgen wrote in a report today, citing data compiled by EPFR Global.

“Emerging markets are beta plays on global markets,” Mark Matthews, head of research for Asia at Bank Julius Baer & Co., said in an interview with Bloomberg UTV today. “People feel they will get better returns in a bull market by being in an emerging market.”

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

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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