June 20 (Bloomberg) -- Indian stocks advanced for a second day as speculation the U.S. Federal Reserve will take fresh stimulus measures countered signals from the nation’s central bank that it may sacrifice growth to control inflation.
Tata Motors Ltd., the owner of Jaguar Land Rover, rallied to a three-week high. Hindustan Unilever Ltd., the largest home products maker, climbed to a record. The BSE India Sensitive Index, or Sensex, rose 0.2 percent to 16,896.63 at close.
Signs of faltering growth mean the Fed will announce new steps to boost the economy, according to 12 of the 21 primary dealers who trade with the central bank, which is scheduled to release its statement on interest rates and the economy today. Indian inflation exceeds acceptable levels and restraining it may require sacrificing economic growth, central bank Governor Duvvuri Subbarao said yesterday.
“Monetary authorities globally are running out of ammunition and all we’ve become are liquidity junkies,” said Andrew Holland, chief executive officer of investment advisory at Ambit Capital Pvt. in Mumbai. “We need the next bit, and we’re waiting for one tonight from the Fed.”
Inflation growth of 7.5 percent is “above our tolerance level” and consumer-price inflation is “disturbing” at more than 10 percent, Subbarao said in a speech in Mumbai yesterday after markets closed.
The Reserve Bank of India unexpectedly left interest rates unchanged on June 18, citing elevated inflation. Curbing the nation’s fiscal deficit and the success of the monsoon are among the keys to controlling prices, Subbarao said.
“We may have to sacrifice growth in the short term to contain inflation, which eventually will help us grow nearly as much as our potential rate in the medium term,” he said.
Inflation has stayed high because of costlier imports of oil and other commodities following a 20 percent slump in the rupee versus the dollar in the past year. The currency fell as economic growth weakened and Europe’s crisis sapped demand for emerging-market assets. The Sensex is valued at 13.3 times estimated earnings, near a three-year low of 12.4 times reached on May 23. The MSCI Emerging Markets Index trades at 10.2 times.
“The known negatives are in the price; a fall in the market from here is difficult,” said Anand Tandon, chief executive officer of JRG Securities Ltd., told Bloomberg UTV today. “There are no great expectations and valuations are not demanding. Free money can drive up commodities and that can be harmful for inflation. But given India’s underperformance, it’s well positioned to absorb large swathes of cash” released by stimulus measures, he said.
Tata Motors jumped 3.3 percent to 245.95 rupees, its highest close since May 29 and extending this year’s rally to 38 percent, the most among Sensex companies. Hindustan Unilever increased 1.4 percent to 455.6 rupees.
Oil & Natural Gas Corp., the largest explorer, added 1.9 percent to 272.55 rupees. Bharat Heavy Electricals Ltd., the biggest power-equipment maker, increased 1.6 percent to 215 rupees, ending a two-day, 3.2 percent drop.
The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. added 0.3 percent to 5,120.55 and its June futures settled at 5,129.90. India VIX, which measures the cost of protection against losses in the Nifty, tumbled 1.9 percent to 21.03, its fourth day of fall. The BSE-200 Index increased 0.5 percent to 2,070.47. Combined trading volume on India’s top two exchanges was 702 million shares yesterday, 23 percent less than the 12-month daily average of 906 million.
Educomp Solutions Ltd., a computer trainer, soared 11 percent to 152.4 rupees after saying it has arranged $155 million to pay off foreign currency convertible bonds of $78.5 million on due date, the company said in an exchange filing.
Uttam Galva Steels Ltd., the Indian unit of ArcelorMittal, rose 2.7 percent to 73.4 rupees after saying it’s targeting a 20 percent increase in profit over the next two years, Deputy Managing Director Ankit Miglani said in an interview.
Offshore investors bought a net $25.4 million of shares yesterday, raising their investments in equities this year to $8.6 billion, data from the regulator show. They cut holdings by $273 million in May, a second month of net sales.
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