Indian stocks rallied for a second day amid expectation slowing inflation may prompt the central bank to lower borrowing costs to boost economic growth.
State Bank of India, the nation’s largest lender, rallied to its highest since August. Tata Motors Ltd., the biggest truckmaker and owner of Jaguar Land Rover, jumped 3.7 percent after its third-quarter profit beat estimates.
The BSE India Sensitive Index, or Sensex, rose 0.4 percent to 17,848.57 at the 3:30 p.m. close in Mumbai. Inflation eased to a two-year low in January, government data showed today. The Reserve Bank of India last month cut banks’ reserves ratio and signaled cuts in interest rates to stoke growth forecast by the government to be the weakest this year since 2009.
“The RBI surprised us by reducing reserve ratios and that is probably the biggest easing story, relative to expectations, we’ve seen in emerging markets this year,” said Adrian Mowat, the Hong Kong-based chief Asia and emerging-market strategist at JPMorgan Chase & Co. “Indian inflation will move lower.”
Reserve Bank Deputy Governor Subir Gokarn said Feb. 2 the authority will reduce rates once it’s confident inflation will keep slowing. Benchmark wholesale-price index rose 6.55 percent from a year earlier, the government said today, compared with 7.47 percent in December. The median estimate of 25 economists in a Bloomberg News survey was for a 6.7 percent jump.
India’s $1.7 trillion economy, Asia’s third biggest, will expand 6.9 percent in the year ending in March, the least since 2009, the government said Feb. 7. Gross domestic product grew 8.4 percent in 2010-2011. The next policy review is on March 15.
Foreign funds have still purchased a net $4.2 billion of Indian stocks since Jan. 1, after pulling out $512 million in 2011, contributing to the 15.5 percent jump in the Sensex. The gauge sank 25 percent last year, its second-worst annual loss. Emerging stock funds got $5.8 billion in the week ended Feb. 8, the most since October 2010, Citigroup Inc. said last week, as policy makers from Brazil to the Philippines cut funding costs.
Emerging-market equities still have “plenty of upside” after rallying this year, Mowat said in a Bloomberg Television interview today. He forecast a 25 percent advance for the MSCI Emerging-Markets Index in 2012. The gauge of developing nation equities has jumped 15 percent this year.
“We will continue to see people adding to emerging and global equity markets risks, and India will be part of that story,” Mowat said.
A cut in debt ratings of six European countries including Italy, Spain and Portugal by Moody’s Investors Service, which also revised its outlook on the U.K. and France to negative, has revived concerns the debt crisis may spread.
“The Moody’s downgrading will take some steam out of the risk appetite,” Mehraboon Jamshed Irani, principal and head of private client group at Nirmal Bang Securities Pvt. in Mumbai, told Bloomberg UTV today. “Markets are governed by liquidity, fundamentals and sentiments. Fundamentals have now taken the backseat and liquidity is driving the markets. Ultimately, somewhere the fundamentals have to catch up.”
Fourteen out of 30, or 47 percent, of companies in the Sensex posted December-quarter profits that trailed analyst estimates, compared with 40 percent in the September quarter, amid higher funding costs and rising raw-material prices.
The S&P CNX Nifty Index on the National Stock Exchange of India added 0.5 percent to 5,416.05. The BSE 200 Index rose 0.5 percent to 2,197.67, a six-month high.
State Bank climbed 3.3 percent to 2,200.15 rupees, taking this year’s rally to 36 percent. ICICI Bank Ltd. rose 1 percent to 943.7 rupees. The 14-member BSE India Bankex Index added 0.8 percent, extending this year’s gain to 32.5 percent and erasing its 2011 loss of 32 percent.
Larsen & Toubro Ltd., the nation’s largest engineering company, surged 3.9 percent to 1,379.5 rupees, pacing a rally among its peers. Bharat Heavy Electricals Ltd., the biggest power-equipment maker, added 1.3 percent to 265 rupees.
GMR Infrastructure Ltd. surged 7.9 percent to 32 rupees, a seven-month high. The BSE India Capital Goods Index surged 2.3 percent, its biggest gain in two weeks.
“I continue to like Indian industrials, consumer cyclicals and financials,” JPMorgan’s Mowat said. “They will be beneficiaries of the reacceleration in growth, decline in inflation and easier monetary policy.”
Tata Motors, the maker of the world’s cheapest car, added 3.7 percent to 267.95 rupees, after reporting profit that beat estimates for the first time in four quarters as sales at its luxury unit Jaguar Land Rover surged. The stock has jumped 50 percent this year, the most among the 30 Sensex companies.
Net income increased 41 percent to a record 34.1 billion rupees, surpassing the 26 billion-rupee median of 21 analysts’ estimates compiled by Bloomberg.
Cipla Ltd., the third-largest drugmaker by value, sank 6.1 percent to 321.2 rupees, the most since May, after the company reported profit that missed analysts’ estimates for the seventh time in eight quarters.