India’s benchmark stock-index rose for the first time in six days as data showing consumer prices climbed at the slowest pace since January 2012 spurred speculation the central bank may ease monetary policy.
State Bank of India had the biggest gain in seven weeks after the country’s largest lender cut deposit rates. Bharat Heavy Electricals Ltd. (BHEL) rallied the most in a month. Mahindra & Mahindra Ltd. (MM) jumped 2.9 percent, leading automakers higher.
The S&P BSE Sensex (SENSEX) increased 0.9 percent to 25,228.65 at the close, snapping a five-day, 4.2 percent retreat. Consumer prices (INFUTOTY) rose 7.31 percent in June from a year earlier, compared with 8.28 percent in May. The data ease pressure on Reserve Bank of India Governor Raghuram Rajan to keep interest rates elevated to curb inflation.
“The decline in inflation is surely positive, and if the trend continues then the RBI may lower borrowing costs,” Arun Kejriwal, a director at Kejriwal Research & Investment Pvt. in Mumbai, said by phone. “The five-day decline in share prices is also giving some comfort to investors.”
Rajan signaled last month he’d ease policy if retail inflation was on pace to decline below 8 percent in January 2015. The next policy review is on Aug. 5.
State Bank shares surged 4.4 percent, the most since May 23. The lender today cut the interest rate on 7-day to 179-day retail term deposits of below 10 million rupees ($166,000) by 50 basis points, according to an exchange filing. ICICI Bank Ltd. (ICICIBC) jumped the most in two months, halting a five-day slide.
“Lenders rallied amid hopes further reduction in deposit rates will boost their margins,” Rikesh Parikh, vice president at Motilal Oswal Securities Ltd., said in a phone interview in Mumbai. “The five-day fall gave investors a good entry point.”
Larsen rallied 2.3 percent, extending this year’s gain to 53 percent. Bharat Heavy advanced 3.5 percent, the most since June 3. Mahindra & Mahindra Ltd. gained to a two-week high, pacing a rally among automakers.
The S&P BSE MidCap Index added 1.9 percent, the biggest gain in a month. A gauge of 456 small-sized companies added 2.2 percent, after retreating 7.8 percent last week. That was the steepest weekly decline since the period ended Nov. 20, 2011, data compiled by Bloomberg show.
The Sensex may advance 13 percent from yesterday’s close by the end of the year as an economic recovery boosts company earnings, according to a Bloomberg survey of seven strategists.
Two years of single-digit profit growth is set to change as growth in Asia’s third-largest economy is bottoming out, Swati Kulkarni, a fund manager at UTI Asset Management Co., said in an interview. Profit margins will improve because of operating leverage as growth picks up, she said.
Eighteen of the 30, or 60 percent, of the Sensex companies posted earnings that beat or matched estimates in the quarter ended March. About 73 percent of results exceeded forecasts in the previous quarter.
The Sensex has risen 19 percent this year, the top performer among the world’s 10 biggest markets, and trades at 15.4 times projected 12-month earnings. The valuation climbed to 16 times on July 7, the most expensive since April 2011, after the gauge climbed to a record that day.
“We are close to the market bottom most have been looking out for,” Gaurang Shah, vice president at Geojit BNP Paribas Financial Services Ltd. (GBNP), told Bloomberg TV India today. “The recent drop has opened up plenty of opportunities for investors to start getting invested.”
Foreigners sold a net $90.5 million of domestic stocks yesterday, ending seven straight days of net inflows, according to data compiled by Bloomberg. They’ve poured $11.2 billion into the nation’s equities this year, the most in Asia, on expectations Prime Minister Narendra Modi’s government will introduce policies to spur growth in an economy expanding at near the slowest pace in a decade.
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