Indian stocks rose to a five-week high amid optimism the central bank will reduce interest rates to revive economic growth after the nation’s industrial output climbed less than estimated in April.
State Bank of India, the largest, led gains among lenders, reversing earlier declines. Larsen & Toubro Ltd., the biggest engineering company, and Maruti Suzuki India Ltd., the largest carmaker, added at least 2 percent each.
The BSE India Sensitive Index, or Sensex, advanced 1.2 percent to 16,862.80 at close, its highest level since May 7. The gauge rallied 4.7 percent last week, capping this year’s best weekly increase. Factory output rose 0.1 percent, missing economists’ estimates for a 1.7 percent climb, government data showed today, a day after Standard & Poor’s warned the nation may lose its investment-grade rating.
“Given the way the market has rallied in the last several days the expectation is being built for a reasonably aggressive move on interest rates,” Ravi Gopalakrishnan, chief investment officer for equities at Pramerica Asset Managers, the Indian unit of Prudential Financial Inc., said by phone from Mumbai. Prudential manages $943 billion in assets globally. “We expect a measured approach from the central bank as it would not like to exhaust all its ammunition given the global crisis.”
The Reserve Bank of India reviews monetary policy on June 18, with pressure building to cut borrowing costs for a second time in 2012 even as inflation exceeds 7 percent. Growth in the first quarter was the slowest in nine years, prompting Prime Minister Manmohan Singh to last week pledge investments into infrastructure projects. S&P said yesterday India could become the first BRIC nation to lose its investment-grade rating as a discord among the ruling coalition stymies Singh’s efforts to revive economic expansion.
“We’re probably closer to a bottom because the interest rate cycle has reversed and the government is taking some steps to prop the investment cycle,” Gopalakrishnan said. “If one believes that the pain is there for another quarter followed by a recovery then this is a good time to enter.”
The Reserve Bank of India may cut its benchmark interest rate to 7.75 percent from 8 percent when it reviews policy on June 18, according to the median estimate of 15 analysts in a Bloomberg survey. The authority may leave the cash reserve ratio for banks unchanged at 4.75 percent, analysts forecast.
Inflation may have accelerated for a second month to 7.5 percent in May, from 7.23 percent in April, according to the median estimate of 31 analysts in a Bloomberg survey. The data will be published on June 14.
The 30-stock Sensex has advanced 9 percent this year and trades at 13.2 times estimated earnings, near the lowest in more than three years, according to data compiled by Bloomberg. That compares with the MSCI Emerging Markets Index’s 9.9 times.|
“While India has significant near-term impediments to get over, both on the political and economic side, valuations have come down to reflect the increasing pessimism,” Richard Titherington, chief investment officer and head of emerging markets at JPMorgan Asset Management, told Bloomberg UTV today. “A lot of the bad news is priced in.”
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, slid 3.3 percent to 24.20. The Nifty surged 1.2 percent to 5,115.90. The BSE 200 Index rose 1.2 percent to 2,070.01. About 926 million shares traded yesterday, matching the 12-month daily average.
State Bank advanced 1.9 percent to 2,206.15 rupees. ICICI Bank Ltd., the second-biggest, increased 1.5 percent to 839.05 rupees. Larsen & Toubro gained 2.5 percent to 1,315.65 rupees.
Sterlite Industries (India) Ltd., the biggest copper and zinc producer, rallied 3 percent to 104.35 rupees, its sixth day of advance. Maruti rose 3.1 percent to 1,144.55 rupees. Tata Motors Ltd., the biggest truckmaker and owner of Jaguar Land Rover, increased 3.2 percent to 242.95 rupees.
Overseas investors were net buyers of local shares for a fifth day yesterday, purchasing a net $39 million of stocks, data from the market regulator show. Foreigners cut holdings by $273 million in May, a second month of net sales. Still, funds have placaed a net $8.5 billion in Indian equities this year, a record for the period, data compiled by Bloomberg show.