Indian Stocks Rise to One-Month High as Singh Pledges Stimulus

Indian Prime Minister Manmohan Singh
Manmohan Singh, India's prime minister. Photographer: Pankaj Nangia/Bloomberg

Indian stocks climbed to the highest level in a month after Prime Minister Manmohan Singh pledged to revive growth in Asia’s third-largest economy.

ICICI Bank Ltd., the nation’s second-biggest lender, paced gains among its peers. Reliance Industries Ltd., owner of the world’s largest oil-refining complex, rose to a four-week high after Chairman Mukesh Ambani unveiled plans to plans to invest 1 trillion rupees ($18 billion) over five years to double its operating profit. The BSE India Sensitive Index advanced 1.2 percent to 16,649.05, its highest close since May 7, bound for its best week this year with a 4.3 percent gain.

India’s Singh yesterday outlined port, railways and road projects and a push to add power-generation capacity to bolster the economy. The government’s pledge follows the central bank’s signal to cut borrowing costs to support an economy expanding at the weakest pace in almost a decade as policy gridlock deters investment and Europe’s debt crisis hampers exports.

“From a very low level of confidence there’s now hope that things will happen,” Hitesh Zaveri, head of investments of portfolio management services at Mumbai-based Birla Sun Life Asset Management Co., said in a phone interview. “There’s expectation of a stimulus coming from Europe and of a rate cut locally. That forced short-sellers to cover their bets.”

While European Central Bank President Mario Draghi said yesterday officials stand ready to act as the euro region’s growth outlook worsens, China cut interest rates for the first time since 2008 to boost growth. The decision came after close of Indian markets.

China Rate Cut

The Stoxx Europe 600 Index rose 1.4 percent, extending yesterday’s biggest rally in six months, while the Standard & Poor’s 500 Index futures added 0.9 percent, as China’s move fanned optimism that policy makers around the world will do more to support growth.

“It is going to be very positive for emerging markets and could create a short-term rally, particularly in markets like China and India because they have been very affected by what’s happening in Europe,” Sam Mahtani, director of emerging market equities at F&C Asset Management Plc in London, said in a phone interview. “May obviously was a tough time for all.”

The MSCI BRIC Index, a gauge of shares traded in Brazil, Russia, China and India, sank 14 percent in May, the most since September. Growth concerns dragged the Sensex down 6.4 percent last month, its worst May performance since 2006.

“We must work to create an atmosphere which is conducive to investment and to removing any bottlenecks that may be hurting the growth process,” Singh said in a statement in New Delhi yesterday. “We as a government are committed to taking the necessary measures to reverse the present situation.”

Policy Gridlock

Gross domestic product expanded 5.3 percent last quarter, the least in nine years, stoking concern the nation’s economic outlook has deteriorated as policy gridlock deters investment and Europe’s debt crisis crimps exports. The slowdown and an oil-price drop suggest more room for interest-rate cuts even as inflation risks remain, Reserve Bank of India Deputy Governor Subir Gokarn said June 1 and reiterated his position on June 4.

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.

The rupee, Asia’s worst performing currency in the past year with a 19 percent plunge, advanced for a third day after Singh’s statement. The currency added 0.8 percent to 54.945 a dollar at close. It fell to a record 56.5150 on May 31.

VIX Cools

India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, sank 5.1 percent to 23.64. The Nifty increased 1.1 percent to 5,049.65. The BSE 200 Index rose 1 percent to 2,046.21, its fourth day of gains. About 900 million shares traded on the BSE and NSE yesterday, matching the 12-month daily average.

ICICI Bank increased 2.7 percent to 830.05 rupees. HDFC Bank Ltd., the third-biggest, jumped 3.4 percent to 537.8 rupees. Axis Bank Ltd. rallied 3.6 percent to 1,057.1 rupees.

Tata Power Co., the biggest electricity generator outside state control, advanced 1.9 percent to 93.3 rupees. Sterlite Industries (India) Ltd., the largest copper and zinc producer, rallied 3.9 percent to 93.3 rupees, the most on the Sensex.

Infosys Ltd., the second-largest software exporter that gets 98 percent of its sales from abroad, rose 1.6 percent to 2,452.95 rupees. Reliance added 0.8 percent to 721.25 rupees, extending its gain to 6.7 percent since May 16 when it closed at more than a three-year low.

Overseas investors bought a net $31 million of domestic stocks yesterday for the first time in five days, raising total investment in equities this year to $8.3 billion, data from the regulator show.

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