Indian stocks had their biggest gain this year as global equities rose on speculation policy makers will take steps to spur growth.
State Bank of India, the nation’s biggest lender, led a rally among its peers. Tata Motors Ltd., the largest truckmaker and owner of Jaguar Land Rover, jumped the most in four months. The BSE India Sensitive Index soared 2.7 percent to 16,454.3 at close, matching the 30-stock gauge’s gain on Jan. 3. As many as 12 stocks jumped more than 3 percent each. The MSCI All-Country World Index climbed for a second day.
UTI Asset Management Co., the country’s best-performing debt-fund manager, expects the Reserve Bank of India to cut a key interest rate by 25 basis points at its review on June 18 after Deputy Governor Subir Gokarn signaled slowing growth and lower oil costs improved scope for easing. The European Central Bank left rates unchanged today, increasing pressure on policy makers to deliver further stimulus.
“It was a relief rally in the global markets as investors expect measures by the ECB to boost sentiment,” Kaushik Dani, a fund manager at Peerless Mutual Fund, which has about $700 million in assets, said by phone from Mumbai. “A rate cut by the RBI is imminent given the economic slowdown.”
The RBI cut rates on April 17 for the first time in three years, after raising it a record 13 times from mid-March 2010 to October last year to cool prices. Inflation averaged 7.1 percent in the first four months of this year, compared with 9.5 percent in the whole of 2011. Crude-oil prices in New York have fallen 14 percent this year.
“The factors that are, perhaps, providing some more room: one is, growth has slowed down somewhat more than expected,” RBI’s Gokarn said June 1. “Second, oil prices have come down somewhat more than expected. Things are working on both sides. Inflation risks remain.” He reiterated his position on June 4.
The Sensex has fallen 11 percent from this year’s high and the rupee sank 6 percent last month in Asia’s worst performance as discord among the ruling coalition stalled policy making and dented investments. The economy grew 5.3 percent in the March quarter from a year earlier, the least in nine years. The gauge trades at 12.9 times estimated earnings, near a three-year low.
“What’s exciting me about the markets is the valuation,” Ridham Desai, India managing director at Morgan Stanley, told Bloomberg UTV today. “There is a 10 percent downside risk if something goes wrong in Europe in the next 15 days. Keep some ammunition in your barrel to fire at that time. For now, start backing up the truck and loading up on equities.”
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, sank 5.2 percent to 24.90. The Nifty jumped 2.8 percent to 4,997.10, the most since Jan. 3. About 660 million shares traded yesterday, 27 percent less than the 12-month daily average.
State Bank of India jumped 3.6 percent to 2,158.25 rupees. HDFC Bank Ltd., the third-biggest lender, surged 3.7 percent to 519.9 rupees. ICICI Bank Ltd., the second-biggest lender, rose 2.1 percent to 808.4 rupees.
Bharat Heavy Electricals Ltd., the biggest power-equipment maker, increased 2.7 percent to 215.7 rupees. Larsen & Toubro Ltd., the largest engineering company, soared 4.6 percent to 1,267.15 rupees, extending this week’s rally to 12 percent.
Tata Motors jumped 5.8 percent to 234.4 rupees. The stock slumped 26 percent last month, paring this year’s advance to 31 percent. The drop from its 2012 peak is “unjustified,” Jigar Shah, an analyst at Kim Eng Securities Ltd., wrote in a report today. Maruti Suzuki Ltd., the biggest carmarker, gained 2.7 percent to 1,107.95 rupees. Hero Motocorp Ltd., the largest two-wheeler company, jumped 4.8 percent to 1,955.05 rupees, its steepest climb since Sept. 5.
Offshore investors withdrew a net $113 million from local shares on yesterday, paring their investment in Indian equities this year to $8.2 billion, according to the market regulator.
Foreigners reduced holdings by $273 million in May. Still, investments into local equities are at record levels, according to data compiled by Bloomberg.