Indian Stocks Climb to Two-Week High on Reforms, Easing Optimism

India’s (SENSEX) benchmark stock index rose to the highest level in two weeks amid optimism the government will take more measures to boost growth.

The BSE India Sensitive Index, or Sensex, advanced 0.5 percent to 19,458.66, the highest level since Dec. 6, according to preliminary closing prices in Mumbai. Tata Motors Ltd. (TTMT), the owner of Jaguar and Land Rover, and Sterlite Industries (India) Ltd. (STLT) led carmakers and materials producers higher. SREI Infrastructure Finance Ltd. (SREI) and Edelweiss Financial Services Ltd. (EDEL), which are not part of the Sensex, rallied, leading gains among non-banking finance companies.

Lawmakers approved changes in the nation’s banking laws yesterday, raising a cap on voting rights and giving more power to the central bank in a move that may attract investment to the industry. Reserve Bank Governor Duvvuri Subbarao signaled higher odds of a reduction in interest costs, lifting investor confidence even after he held the benchmark rate yesterday for a fifth policy meeting. Goldman Sachs Group Inc. today said it sees “high likelihood” of a 50 basis points cut in January.

“It appears the RBI will finally start to cut rates,” said Mahesh Patil, co-chief investment officer at Birla Sun Life Asset Management Co., India’s fourth-biggest money manager with $13.3 billion in assets. Patil said he expects the central bank to cut rates by up to 75 basis points in 2013.

Subbarao yesterday kept the repurchase rate at 8 percent and held the cash reserve ratio for lenders at 4.25 percent, withstanding calls from Finance Minister Palaniappan Chidambaram for lower rates to revive an economy forecast by the government on Dec. 17 to expand at the slowest pace in a decade this fiscal year. Still, with inflation cooling, monetary policy has to “respond to the threats to growth,” the authority said yesterday. The RBI’s next policy review is on Jan. 29.

The Sensex has risen 26 percent this year, headed for its biggest annual jump since 2009, as government steps to open the economy to offshore investment lured foreign funds. Overseas funds were net buyers of domestic stocks for a 23rd day on Dec. 17, taking net purchases in 2012 to $22.5 billion, the highest among 10 Asian markets tracked by Bloomberg, excluding China, data compiled by Bloomberg show.

The 30-stock Sensex is valued at 15.4 times estimated earnings, compared with the MSCI Emerging Markets Index’s 12.1 times, data compiled by Bloomberg show. Volumes in the gauge exceeded the 30-day average for this time of day by 37 percent, data compiled by Bloomberg show.

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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