India’s benchmark equities index held at a two-year high as foreign investors increased their holdings of local shares amid government measures to revive economic growth.
The BSE India Sensitive Index (SENSEX), or Sensex, rose 0.4 percent to 19,986.82 at the close, after surpassing 20,000 intraday for the first time since January 2011. Bharti Airtel Ltd. (BHARTI), India’s largest mobile-phone operator, advanced 5 percent. Cigarette maker ITC Ltd. (ITC) increased to a one-week high.
The Sensex had its biggest annual increase last year since 2009 as Prime Minister Manmohan Singh took measures to attract foreign investment to boost an economy growing at the slowest pace in three years and to avert a credit-rating downgrade. The Sensex may climb to 22,500 this year if policy steps continue, Deutsche Bank AG said in a report today, joining Morgan Stanley which expects the gauge to reach 23,069 by December as company earnings recover.
“The government has indicated a number of times that it is willing to push these initiatives, so we are positive on Indian equities,” Robert Aspin, an investment strategist with Standard Chartered Bank in Singapore, told Bloomberg TV India. “Inflation will come down in the next few quarters and on the back of that the central bank will be able to reduce rates.”
Data showed yesterday the benchmark inflation rate slowed to a three-year low in December, widening the Reserve Bank of India’s scope to reduce borrowing costs to revive the economy. The central bank signaled last month that monetary policy must shift toward aiding economic growth, predicting inflation will moderate. The RBI meets for its next policy review on Jan. 29.
“The onus of transition from vicious to virtuous will initially lie with New Delhi and the Reserve Bank of India during the first half of 2013 before the baton is taken up by the private sector in the second half of the year,” Deutsche Bank said in the report.
Lenders Axis Bank Ltd. (AXSB), Bank of Baroda and Punjab National Bank (PNB) are among Deutsche Bank’s top picks for 2013, along with Bharat Heavy Electricals Ltd. (BHEL), India’s biggest power-equipment maker, and Larsen & Toubro Ltd. (LT), the top engineering company.
Bharti increased 5 percent to 345.2 rupees. ITC added 2.2 percent to 284.1 rupees, the highest close since Jan. 8. Tata Motors Ltd. (TTMT), the owner of Jaguar Land Rover, rose 1.2 percent to 331.55 rupees. Maruti Suzuki India Ltd. (MSIL), India’s biggest carmaker, added 0.5 percent to 1,546 rupees.
Tata Consultancy Services Ltd. (TCS), India’s biggest software maker, added 0.2 percent after its net income beat estimates. Earnings were announced yesterday after markets closed.
Two of the 30 Sensex companies that announced earnings for the December quarter so far have exceeded analysts estimates. Net incomes for 40 percent of the Sensex firms missed analysts’ estimates for the three months ended September, the same as for the June quarter, data compiled by Bloomberg show.
“We expect revenue growth to remain modest but margins to expand and profit growth to improve, especially for the board market” in the quarter ended December, Morgan Stanley India analysts led by Ridham Desai wrote in a report today. Sensex earnings may grow 10 percent in the year ending March, and 19 percent in 2014, according to the report.
Singh cut fuel subsidies in September to tackle a budget deficit and opened industries from retail to aviation to more overseas investment. Finance Minister Palaniappan Chidambaram said last month he expects a policy to let foreigners increase holdings in insurers to be approved in the next session of parliament. The government yesterday delayed a clampdown on tax avoidance until 2016 after the plans spooked foreign investors.
The steps help spur inflows into stocks, with foreigners buying a net $1.8 billion this year, almost three times the level at the same time in 2012. They plowed a net $24.5 billion into local shares last year, the highest among 10 Asian markets tracked by Bloomberg, which excludes China.
The Sensex’s rally last year was more than twice the gain of the MSCI BRIC index in 2012, and compared with a 3 percent increase for the Shanghai Composite Index. The Sensex trades at 15.8 times estimated earnings, compared with a multiple of 11 for MSCI Emerging Markets Index.
The S&P CNX Nifty Index (NIFTY) on the National Stock Exchange of India increased 0.5 percent to 6,056.60. The BSE Mid-Cap Index rose 0.3 percent, its second day of gains. India VIX, which measures the cost of protection against losses in the Nifty, fell 0.9 percent to 13.70.
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