India’s benchmark stock-index rose to an all-time high after the nation’s central bank signaled it would ease monetary policy if inflation slows faster than anticipated and cut the liquidity ratio requirement for banks.
Tata Steel Ltd. (TATA) and Steel Authority of India Ltd. surged at least 4 percent after Odisha state allowed eight iron-ore mines to reopen after the Supreme Court’s order. Sesa Sterlite Ltd., India’s largest copper and aluminum producer, jumped to a three-year high. NTPC Ltd. (NTPC), the biggest power utility, rallied to its highest price in four months.
The S&P BSE Sensex (SENSEX) added 0.7 percent to a record 24,858.59 at the close in Mumbai. Reserve Bank of India Governor Raghuram Rajan kept the repurchase rate at 8 percent, as forecast by all 38 analysts in a Bloomberg survey. He has increased borrowing costs three times since taking change in September to restrict price gains. Rajan cut the proportion of deposits banks need to invest in government debt to 22.5 percent from 23 percent.
“The SLR cut is a signaling device about RBI’s dovish stance,” Bharat Rawla, head of equities at Macquarie Capital Securities (India) Pvt., said in an e-mail interview today. “Any improvement in inflation ahead of expectations can open the door for a rate cut.”
The RBI said further policy tightening won’t be warranted if consumer-price inflation stays on course to hit 8 percent in January 2015 and 6 percent a year later. If disinflation is faster than anticipated “it will provide headroom for an easing of the policy stance,” it said.
Tata Steel soared 6.9 percent to its highest level since August 2011. Steel Authority jumped 4.3 percent. Eight mines, with an annual combined capacity of 20 million tons, resumed ore extraction, G. Srinivas, the mines secretary at the Odisha government, said yesterday by phone. These include four mines of Tata Steel, three of Steel Authority and one belonging to Orissa Mining Corp.
The Supreme Court on May 16 ordered suspension of mining at 26 quarries, pending renewal of extraction leases from the regional government. The court gave six months to the state to dispose all applications for renewing permits and asked it to first process the applications for mines owned by steelmakers.
“Restarting of the mines is positive news and one of the main reasons for the shares to rally,” said Abhisar Jain, an analyst at Mumbai-based Centrum Broking Pvt.
Hindalco Industries Ltd. (HNDL) increased 3.4 percent, while Sesa advanced 6.4 percent to its highest level since May 17, 2011.
Coal India Ltd., the world’s biggest miner of the fuel, rallied 5.4 percent, extending last month’s 27 percent rally. Oil & Natural Gas Corp. (ONGC) jumped 4.3 percent. Reliance Industries Ltd. (RIL) added 1.2 percent.
Bharat Heavy Electricals Ltd. (BHEL), India’s biggest producer of power-equipments, soared 3.5 percent, taking this year’s gains to 46 percent. NTPC increased 3.1 percent.
The cut in the statutory liquidity ratio reflects the need to balance lenders’ funding requirements with the government’s financing needs, the central bank said. Any more reductions in this rate will depend on the “likely path of fiscal consolidation,” the RBI said.
“By cutting the SLR the RBI has created a little headroom in case credit growth picks up,” Aneesh Srivastava, chief investment officer with IDBI Federal Life Insurance Co., said by phone from Mumbai.
Prime Minister Narendra Modi’s landslide win last month is spurring optimism that he’ll take steps to cool price pressures and lead a recovery among the world’s biggest emerging markets, which are forecast to grow at the slowest pace since 2009.
India’s consumer price gains accelerated to a three-month high of 8.59 percent in April, the fastest pace among 18 Asian economies tracked by Bloomberg. Risks to the central forecast of 8 percent retail inflation by January 2015 “remain broadly balanced,” the RBI said.
Finance Minister Arun Jaitley agreed with Rajan on the need to curb inflation when the two met last week. Jaitley said he’d make it a priority to curb the fiscal deficit when he unveils the budget in July, in line with Rajan’s wishes.
The Sensex has risen 17 percent this year on expectations the strongest electoral win in three decades will enable Modi to take measures to revive economic growth. The gauge is valued at 15.3 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s multiple of 10.7, data compiled by Bloomberg show.
Overseas funds bought a net $522.7 million of local shares on May 29, the first inflow in a week. That took this year’s purchases to $8.1 billion, the most among eight Asian markets tracked by Bloomberg.