Indian stocks climbed the most in Asia after the government said an increase in fuel prices was “unavoidable,” and on speculation the central bank may reduce borrowing costs to revive economic growth.
The BSE India Sensitive Index, or Sensex, rose 0.5 percent to 17,852.95 at close. Housing Development Finance Corp., the biggest mortgage lender, climbed to a two-year high. Tata Consultancy Services Ltd., the largest software maker, surged to a record and Bharat Petroleum Corp., the second-biggest state-owned refiner, rallied the most in three weeks.
Production at Indian factories shrank in three of the six months through June as external demand weakened. A government report tomorrow may show output increased 0.5 percent in July, following a 1.8 percent drop the previous month, according to the median estimate in a Bloomberg News survey. An increase in fuel costs is “unavoidable,” oil minister S. Jaipal Reddy said today, a move that would help pare the fiscal deficit and prompt the central bank to ease monetary policy.
“Some sort of hopes for a rate cut are getting built in from the voices we’re hearing,” Kaushik Dani, a fund manager at Peerless Mutual Fund, which has $725 million in assets, said by telephone from Mumbai. “Industrial production and inflation data will be crucial as the RBI will act only if it sees prices softening and some reform measures from the government.”
Inflation picked up to 7 percent in August, after dipping to 6.87 percent in July, a separate Bloomberg survey showed. The RBI, which reduced the repurchase rate in April, refrained from cutting it at a policy review on July 31. The next meeting is due on Sept. 17. India’s economy grew 5.5 percent last quarter, approaching the 5.3 percent in the three months ended in March that was the lowest since 2009.
Germany’s Federal Constitutional Court rules tomorrow on the country’s participation in the European bailout fund. The U.S. Federal Reserve, which starts a two-day meeting tomorrow, will keep borrowing costs near zero, according to Bloomberg survey, and decide whether additional bond purchases are warranted to support the economy.
“The market is looking at some of the events in the near future to get the right trigger, the first of which is tomorrow when the German court meets to endorse the validity of the bond buyback program,” Sanjay Sinha, founder of Citrus Advisors, told Bloomberg TV India today. “The Fed meet and its outcome is a global event.”
The Sensex has climbed 15.5 percent this year, helped by the highest foreign flows among the 10 Asian markets outside China tracked by Bloomberg. Overseas funds bought a net $131 million of shares yesterday, taking their investment in local equities in 2012 to $12.6 billion, data from the regulator show.
“The market has held at the current levels only because of the large gush of liquidity that has come in,” Sinha said.
The 30-stock gauge trades at 14 times estimated earnings, compared with 10.9 times for the MSCI Emerging Markets Index.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, added 0.7 percent to 15.38. The Nifty Index increased 0.5 percent to 5,390 and its September futures settled at 5,405.35. The BSE-200 Index climbed 0.4 percent to 2,171.65. India’s top two bourses traded 653 million shares yesterday, 26 percent less than the 12-month daily average of 881 million shares.
Housing Development Finance surged 2.5 percent to 759.55 rupees, its highest close since Oct. 4, 2010. Tata Consultancy advanced 1.6 percent to 1,392.65, its highest level since the shares were listed in August 2004.
Bharat Petroleum gained 2 percent to 349.2 rupees. Hindustan Petroleum Corp. climbed 2.6 percent to 310.6 rupees. Indian Oil Corp., the biggest state-run refiner, added 0.5 percent to 253.55 rupees, its eighth day of advance.
The three refiners may lose a combined 2 trillion rupees from selling diesel, kerosene and cooking gas below cost in the year ending March if fuel prices aren’t increased, Reddy said on Sept. 7. Gasoline prices haven’t been increased since July 23 and diesel since June last year.
Sesa Goa Ltd., the biggest iron-ore exporter, plunged 6.2 percent to 159.3 rupees after a ban on mining in Goa state. Sterlite Industries (India) Ltd., the largest copper producer which is set to be merged with Sesa, tumbled 4.6 percent to 94 rupees. The ban on iron-ore mining in Goa, which accounts for more than half of India’s exports of the steelmaking raw material, is effective starting today, R.K. Verma, principal secretary in the Goa government, said in a statement, without specifying the duration.
Jindal Steel & Power Ltd. declined 3.1 percent to 333.55 rupees. Hero Motocorp Ltd., the biggest motorcycle maker, retreated 1.2 percent to 1,798.35 rupees.