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India’s Sensex Advances to One-Month High on Europe, Fund Flows

Soros Fund Management LLC Founder George Soros
“We are now in a more dangerous situation than in 2008,” Soros said in the southern Indian city of Bangalore yesterday. Photographer: Namas Bhojani/Bloomberg

India’s benchmark stock index rose to a one-month high on speculation European officials will take steps to end the region’s debt, and as foreign flows increased amid expectation the central bank will ease a liquidity crunch.

Reliance Industries Ltd., owner of the world’s largest refining complex, climbed the most in three weeks. State Bank of India, the biggest lender, surged 4 percent, pacing gains among its peers. The rupee rose for a third day, the longest winning run in more than two months, after data showed global funds’ holdings of local stocks increased this month by an average $42 million a day.

German Chancellor Angela Merkel said Greece would be the focus of talks with the International Monetary Fund Managing Director Christine Lagarde today in Berlin. Data from India’s trade ministry due Jan. 16 may show a decline in the country’s inflation rate to a two-year low, according to a Bloomberg News survey of 15 economists.

“The peak of the inflation is behind us,” Ridham Desai, India Managing Director at Morgan Stanley, told Bloomberg UTV in an interview today. The central bank may cut funding costs later this year and “the pace at which it will happen depends on Europe and inflation data.” he said. The brokerage expects 20 percent gains from local shares over the next 12 months.

The BSE India Sensitive Index, or Sensex, rallied 350.37, or 2.2 percent, to 16,165.09 at the 3:30 p.m. close in Mumbai, its highest level since Dec. 9 and the best performance after China among Asian indexes. The Shanghai Composite Index had its biggest three-day advance since October 2010, as slowing trade data stoked speculation the government may ease monetary policy.

‘Not Bearish’

The Sensex slumped 25 percent in 2011 on concern a falling rupee and a record series of rate increases will exacerbate the effects of the European crisis on earnings. It trades at 14.1 times future profit, down from 19.4 times at end of 2010. The MSCI Emerging Markets Index is valued at 9.6 times.

“The good news is that all the bad news is already in play,” Desai said. “I am not that bearish. Sentiment is really bad and expectations are low; there’s likelihood that somethings will go right.” His team was ranked second for India research by Institutional Investor magazine last year.

The Reserve Bank of India paused on rates last month after a record 13 increases since March 2010, as inflation dropped to a one-year low in November. Weekly food-price index fell 3.36 percent in the week ended Dec. 24, the trade ministry said Jan. 5. That is the lowest in at least 5 1/2 years. The RBI’s next policy review is on Jan. 24.

Mid-Cap Stocks

The S&P CNX Nifty Index on the National Stock Exchange of India added 2.3 percent to 4,849.55. The BSE 200 Index gained 2.3 percent and the BSE Mid-Cap Index jumped 2.2 percent, to 5,451.08, the highest level since Dec. 13.

Reliance surged 4.2 percent to 736.2 rupees, paring last year’s 34 percent drop. Larsen & Toubro Ltd., the largest engineering company, added 4.2 percent to 1,133.8 rupees

Mahindra & Mahindra Ltd., India’s largest maker of SUVs, rallied 5.5 percent to 689.2 rupees, its highest close since Dec. 27. Tata Motors Ltd., the biggest truckmaker and owner of Jaguar Land Rover, added 2.2 percent to 205.1 rupees. Maruti Suzuki India Ltd., the largest carmaker, gained 1.6 percent to 986.35 rupees.

India’s local car sales rose for a second straight month in December as consumers speculated borrowing costs have peaked and that automakers will raise prices this year.

Deliveries increased 8.5 percent from a year earlier to 159,325 vehicles in December, after gaining 7 percent the previous month, according to data released by the Society of Indian Automobile Manufacturers. Full-year sales rose to 1.95 million vehicles last year from 1.87 million in 2010.

Lenders Gain

State Bank climbed 4 percent to 1,702.6 rupees, erasing a five-day, 4 percent slide. ICICI Bank Ltd. added 3.6 percent to 774.5 rupees. Housing Development Finance Corp., the biggest mortgage lender, advanced 3.1 percent to 684 rupees.

IndusInd Bank Ltd.’s reported third-quarter profit of 2.01 billion rupees, beating the 1.94 billion rupee estimated by analysts. The shares surged 6.2 percent to 260.9 rupees, its highest level since Dec. 7.

Infosys Ltd., the nation’s second-biggest software maker, will announce earnings on Jan. 12, the first Sensex company to report for the three months ended December. Profit estimates for companies in the index for the year ending in March have fallen 8.7 percent to 1,150 rupees per share, the most since the year ended March 2009, according to about 1,500 estimates compiled by Bloomberg.

Foreign investors bought a net 124 million rupees ($2.35 million) of Indian stocks yesterday, raising total investments in equities this year to 10.4 billion rupees, data from the Securities & Exchange Board of India show.

They sold $512 million of equities in 2011, compared with a record inflow of $29.4 billion in 2010, on concern a slowdown in the U.S. and Europe’s crisis may erode company profits.

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