India Stock Futures Rise as Fed Raises U.S. Assessment

Indian stocks rose to their highest level in three weeks as the U.S. Federal Reserve boosting its economic assessment overshadowed faster-than-estimated growth in the nation’s inflation rate.

ICICI Bank Ltd. (ICICIBC), the nation’s largest non-state-run lender, jumped to its highest close since Feb. 22, pacing a rally among its peers. Larsen & Toubro Ltd. (LT), the biggest engineering and construction, gained 2.6 percent, extending a four-day winning streak. Infosys Ltd. (INFY), which gets more than 90 percent of sales from abroad, climbed for a second day.

The BSE India Sensitive Index, or Sensex, rose 0.6 percent to 17,919.30 at close in Mumbai, its highest close since Feb. 24. The gauge pared an intraday gain of 1.3 percent after data showed the wholesale-price index climbed for the first time in five months in February, weakening the case for a reduction in funding costs. The central bank reviews rates tomorrow, with the federal budget presentation due on March 16.

“We have passed through the worst inflationary phase,” Deven Choksey, managing director at Mumbai-based K.R. Choksey Shares & Securities, said by phone today. “The spurt in inflation was not unexpected. It may lead the RBI to postpone the rate cut. Inflation can’t chain investors as they remain hopeful the budget will contain measures to stimulate growth.”

The Sensex (SENSEX) has climbed 16 percent this year as foreigners poured a net $8 billion into local stocks amid optimism slowing inflation will prompt the central bank to lower interest rates. A 17 percent jump in Brent crude, the benchmark for almost all of India’s imports, has added to consumer prices as the country imports three-quarters of its oil. The wholesale-price index rose 6.95 percent last month from a year ago, after rising 6.55 percent in January, the trade ministry said today.

‘Upside’

Governor Duvvuri Subbarao raised borrowing costs a record 13 times from March 2010 to October last year in an attempt to curb inflation. The increases caused a cash squeeze, prompting the Reserve Bank of India to unexpectedly lower the amount of funds banks need to set aside as reserves in January and March.

The Sensex trades at a price-to-book ratio of 3, less than the 10-year average of 3.43, data compiled by Bloomberg show, a signal “there’s lot of room for upside,” said Nandita Agarwal Parker, general partner at Karma Capital Management LLC.

“We are in a five-year bull market as far as emerging markets are concerned, and this year we have a backdrop of falling interest rates across emerging markets as well as in India,” she told Bloomberg UTV. “Price-to-book valuations are currently lower than the 10-year average.”

The Fed said yesterday that strains in global financial markets have eased and the labor market is gathering strength. Separately, the Fed said 15 of the largest 19 U.S. banks could maintain adequate capital levels even in a recession scenario.

Rail Stocks

Shares of Kalindee Rail Nirman (Engineers) Ltd. (KRNE), Texmaco Rail & Engineering Ltd. (TXMRE) and Kernex Microsystems (KMSI) (India) Ltd. sank more than 5 percent after the railway budget announcement today. Indian Railways, Asia’s oldest network, aims to borrow 150 billion rupees in the year starting April 1 as it adds more trains and replaces old coaches, Minister Dinesh Trivedi said.

“These stocks had gone up very fast so a correction was on the cards,” Choksey said. “The government’s rail projects are low on margins. There’s no need to be gung-ho about them.”

The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. added 0.6 percent to 5,463.90.

Infosys jumped 0.7 percent to 2,878.9 rupees. ICICI Bank rose 2.6 percent to 953.9 rupees. Axis Bank Ltd. (AXSB) shares rose 2.7 percent to 1,274.05 rupees after Business Standard reported Schroders will buy 30 percent stake in Axis Asset Management. (ADN)

Suzlon Energy Ltd. (SUEL), India’s biggest wind-turbine maker, surged 2.7 percent to 30 rupees after company sold five Brazilian wind farms for 540 million reais ($300 million) to concentrate on its core business of making power equipment.

Overseas investors bought a net 9.1 billion rupees ($182 million) of stocks yesterday, raising their investment in the nation’s equities this year to 404.8 billion rupees, according to the market regulator.

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

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

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