Indian Stocks Climb Most in 3 Weeks as Industrials Rally on PMI

India’s benchmark stock-index rose the most in three weeks, led by industrials and banks, after a gauge of manufacturing output expanded for a seventh month.

Engineering company Larsen & Toubro Ltd. (LT) increased to a record after its fourth-quarter profit beat estimates. State Bank of India jumped 4 percent, helping an index of lenders climb the most in two weeks. Reliance Capital Ltd. (RCAPT) surged to a a three-year high, extending last month’s 49 percent rally.

The S&P BSE Sensex (SENSEX) rose 1.9 percent to 24,684.85 at the close, the most since May 12. A gauge of 228 mid-cap shares jumped 2.2 percent, after rising 16 percent in May. India’s Purchasing Managers’ Index was at a three-month high of 51.4 in May, according to data released by HSBC Holdings Plc and Markit Economics today. The Reserve Bank of India will keep the main interest rate at an 18-month high tomorrow, according to all 34 economists surveyed by Bloomberg.

“There’s expectation that the RBI may provide a dovish commentary on interest rates,” Paras Bothra, vice president for equity research at Ashika Stock Broking Ltd., said by phone today. The manufacturing data helped boost sentiment, he said.

Larsen & Toubro jumped 6.5 percent, the best performance on the Sensex. The BSE Capital Goods Index climbed 4.9 percent to the highest level since January 2011. The gauge of engineering stocks surged 21 percent in May, the best monthly performance since January 2012, after Prime Minister Narendra Modi’s landslide election win spurred stocks that are likely to benefit most from a stronger economy.

State-Controlled Banks

State Bank rose the most since May 23, pacing gains among state-controlled banks, after an official said the government is working on creating a holding company to infuse capital into them. The holding company will be a repository of government equity in all state-owned banks, said the official, who wasn’t authorized to speak publicly.

Reliance Capital Ltd. surged 9.9 percent, the best gainer on the MSCI Emerging Markets Index. Bharti Airtel Ltd. (BHARTI) advanced to its highest price in seven months.

RBI Governor Raghuram Rajan has raised the key rate three times since taking charge in September. He kept borrowing costs on hold in April and said further tightening isn’t anticipated if consumer-price inflation stay on a “glide path” to hit 8 percent in January 2015 and 6 percent a year later. Retail inflation (INFUTOTY) was 8.59 percent in April, accelerating the fastest in three months.

Finance Minister Arun Jaitley agreed with Rajan on the need to curb inflation when the two met last week. Jaitley said he’d make paring the fiscal deficit a priority when he unveils the budget in July, in line with Rajan’s wishes.

“A new government with a fresh attitude, and the timely arrival of the monsoon, could give the Reserve Bank headroom to ease monetary policy,” Bothra said. “Even a hint of a rate cut, even in the near future, will be a positive trigger.”

The Sensex slid 1.9 percent last week, paring its monthly climb to 8 percent. The gauge has risen 16 percent in 2014 amid expectations the strongest electoral win in three decades will enable Modi to take steps to revive growth. Gross domestic product rose 4.6 percent in the March quarter, unchanged from the previous three months, official data showed on May 30.

The CNX Nifty Index on the National Stock Exchange of India today rallied 1.8 percent to 7,362.50.

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

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Ravil Shirodkar, Dick Schumacher

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