Indian Stock Rise on Optimism Government to Support Rupee

Indian stocks advanced for a second day on optimism Prime Minister Manmohan Singh will take steps to stem the rupee’s slide and revive a faltering economy after he took charge today of the government’s finance portfolio.

Infosys Ltd., the second-largest software exporter, rose the most in two weeks. HDFC Bank Ltd., the second-biggest lender by market value, climbed to a two-week high. The BSE India Sensitive Index added 0.4 percent to 16,967.76 at the close in Mumbai. The gauge is bound for its first quarterly loss since the three-month period ended in December.

Finance Minister Pranab Mukherjee resigned from his post yesterday to contest presidential polls, leaving Singh with an economy hobbled by slowing growth, elevated trade and budget deficits and in-fighting that has stymied efforts to attract investments. Mukherjee’s attempts this week to halt a slump in the rupee by allowing foreign funds to buy more bonds fizzled, leaving the currency close to its record low.

“The PM is keen to change the current stance,” Deven Choksey, managing director at Mumbai-based K.R. Choksey Shares & Securities Pvt., told Bloomberg UTV today. “If they want to kick-start growth they have to first manage the rupee, which is precarious at 57 per dollar. From reading their minds, I think they are taking measures to bring up the rupee to about 51 to 52 level and start infrastructure projects that have halted.”

Singh will head the finance ministry until Mukherjee’s successor is named, Pankaj Pachauri, communications adviser to the prime minister’s office, said yesterday. Singh was finance minister in the 1990s, sparking an economic turnaround that now faces one of its sternest tests.

Oil-Import Costs

The rupee fell to an all-time low of 57.3275 per dollar on June 22 and is the worst performer among major Asian currencies this year. The decline has stoked price pressures because India imports 80 percent of its crude and pays for it in dollars.

Elevated inflation has undermined efforts by Singh to pare the widest fiscal deficit among the largest emerging economies, prompting Fitch Ratings and Standard & Poor’s to say they may strip the country of its investment-grade rating. The Reserve Bank of India on June 18 said consumer prices were too high to allow an interest-rate cut.

“Against a backdrop of excessive pessimism, an unexpected bout of policy changes from the government could result in a potential domestic macro-driven trading rally,” Deutsche Bank analysts led by Ajay Kapur wrote in a report dated yesterday. A drop in oil prices would give the central bank “considerable flexibility” to lower borrowing costs, they said.

Brent crude, the benchmark that India uses, has slid 26 percent this quarter. Every $1 drop in prices narrows revenue losses at the government-owned refiners by $770 million, the analysts said. India caps energy costs to rein in inflation.

Rupee-Support Measures

India boosted the amount of government debt foreign funds can purchase by $5 billion to $20 billion on June 25, seeking to lift demand for the rupee. Aside from India’s deteriorating outlook, the rupee has also been hurt by Europe’s debt crisis, which has sapped demand for emerging-market assets.

The currency dropped 0.2 percent to 57.135 at the close.

Infosys gained 1.1 percent to 2,468.1 rupees, the steepest advance since June 14. Tata Consultancy Services Ltd., India’s largest software exporter, rose for a second day, adding 0.9 percent to 1,246.7 rupees.

HDFC Bank rose 1 percent to 549 rupees, the highest close since June 12. ICICI Bank Ltd., the third-biggest lender by market value, gained 1 percent to 852.5 rupees. State Bank of India, the largest, closed little changed at 2,113.4 rupees, paring an intraday climb of 1.2 percent.

Morgan Stanley said in a note dated today that it expects asset-quality pressures at SBI to intensify in the year through March and assigned a stock-price target of 1,425 rupees.

Power Tariffs

Tata Power Co. and Reliance Infrastructure Ltd., suppliers of power in the capital New Delhi, gained after a report that the regulator approved price increases starting July 1. Tata Power jumped 2.2 percent to 97.9 rupees, and Reliance, owned by billionaire Anil Ambani, climbed 2 percent to 544.8 rupees.

Kingfisher Airlines Ltd., the Indian carrier struggling with losses, slumped 7.8 percent to 12.40 rupees, the most in a month, after the Economic Times reported lessors took back 32 planes because of rent defaults.

The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. rose 0.4 percent to 5,141.90, and its June futures settled at 5,139.65. The BSE 200 Index climbed 0.4 percent.

India VIX, a gauge of options prices in the Nifty, added 0.7 percent to 20.4. Combined trading volume on India’s top two bourses was 642 million shares yesterday, 29 percent less than the 12-month daily average of 902 million.

‘Attractive Valuation’

The Sensex has fallen 8 percent from this year’s high set on Feb. 21, and is valued at 13.3 times estimated earnings. The valuation narrowed to a three-year low of 12.4 times on May 23. The MSCI Emerging Markets Index trades at 9.9 times.

“The Sensex is trading at an attractive valuation level of 12 to 12.5 times, a 20 percent discount to the past five years’ average and close to levels from where positive returns become increasingly probable over a medium to long term,” Deutsche Bank said in the report.

Overseas funds bought a net $15.1 million of local stocks yesterday, taking their investment this year to $8.6 billion rupees, data from the market regulator show. They cut holdings by $273 million in May, a second month of net sales.

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