Indian stocks rose to the highest level in more than six months on speculation the central bank will cut interest rates next week and as a German court cleared the way for a permanent euro-area rescue fund.
The BSE India Sensitive Index, or Sensex, increased 0.8 percent to 18,000.03, the highest close since Feb. 23. The gauge climbed 4 percent in past six days, the longest streak since January. Tata Motors Ltd., the owner of Jaguar Land Rover, surged the most in three months. Wipro Ltd., a software services exporter that gets a quarter of its sales from Europe, climbed to a two-month high.
Data today showed Indian industrial output grew 0.1 percent in July, less than the 0.5 percent increase estimated by economists in a Bloomberg survey. Germany’s Federal Constitutional Court rejected today bids to halt the nation’s ratification of the 500 billion-euro ($644 billion) European Stability Mechanism. Indian commerce ministry data show that the European Union is the nation’s largest trading partner.
“The government may pressure the Reserve Bank of India to reduce interest rates in view of the slump in production,” R.K. Gupta, managing director of Taurus Asset Management Ltd., which has $672 million in assets, said by phone from New Delhi today. “Allowing the euro-area rescue fund will be a step toward easing the European debt problems. This will help improve sentiments for Indian equities.”
The Sensex has climbed 16 percent this year, helped by the highest foreign fund inflows among the 10 Asian markets outside China tracked by Bloomberg. Overseas funds bought a net $131 million of shares yesterday, taking investments this year to $12.6 billion, data from the markets regulator show. The Sensex trades at 14.2 times estimated earnings, compared with 11 times for the MSCI Emerging Markets Index.
The S&P CNX Nifty Index increased 0.8 percent to 5,431 and its September futures settled at 5,452. The India VIX gauge, which measures the cost of protection against losses in the Nifty, lost 2.2 percent to 15.04. The BSE-200 Index climbed 0.6 percent to 2,185.19.
Indian stocks were also buoyed after China’s Premier Wen Jiabao said yesterday the nation has “ample” room to use fiscal and monetary policy to meet economic targets. Investors are waiting to see if the U.S. Federal Reserve will announce a third round of asset purchases at the end of a policy meeting tomorrow. The MSCI Asia Pacific Index climbed 1.3 percent today, its fifth straight day of gains.
“India is going to be a beneficiary of increased global risk appetite as markets around the world look to their central banks to wave the magic wand,” Vijay Tohani, chief investment officer at Samsung Asset Management Ltd. in Singapore, said by phone today. The firm oversees about $82 billion of assets.
Reserve Bank of India Governor Duvvuri Subbarao is due to announce his next interest-rate decision on Sept. 17. He left the benchmark repurchase rate at 8 percent for a second meeting in July, refraining from joining a wave of cuts in borrowing costs stretching from Asia to Europe.
“The expectation is that there could be a 25 basis-point rate cut” as economic growth is slowing down, Mahesh Patil, co-chief investment officer at Birla Sun Life Asset Management Co., India’s fourth-biggest money manager, told Bloomberg TV India today before the industrial output data. “But looking at where inflation is, it might get a bit delayed also.”
Data on Sept. 14 may show inflation accelerated to 7.05 percent last month from 6.87 percent in July, according to the median estimate in a Bloomberg economist survey. India’s gross domestic product rose 5.5 percent in the three months through June from a year earlier, close to a three-year low of 5.3 percent in the first quarter.
National Stock Exchange of India Ltd. and BSE Ltd., India’s top two bourses, traded 715 million shares yesterday, 19 percent less than the 12-month daily average of 881 million.
Tata Motors surged 5.4 percent, the most since June 15, to 263.25 rupees, the highest level since May 29. The company has invested 370 million pounds ($595 million) to upgrade its Jaguar Land Rover manufacturing plant in the U.K. Jaguar Land Rover accounts for 64 percent of Tata Motors’s revenue.
Wipro added 2.6 percent to 384.55 rupees, its highest close since July 9. Tata Consultancy Services Ltd., which gets 90 percent of its sales from abroad, rose 1.6 percent to 1,414.9 rupees, its highest price since listing in August 2004.
Among materials producers, Tata Steel Ltd., the biggest producer of the alloy, increased 2.7 percent to 387.15 rupees. Jindal Steel & Power Ltd., India’s third-largest producer of the alloy by value, jumped 3.9 percent to 346.65 rupees, rebounding from an intra-day drop of as much as 3.9 percent.
Larsen & Toubro Ltd., the largest engineering company, added 2.9 percent to 1,409.4 rupees. Hindustan Unilever Ltd., the biggest household products maker, rallied 1.7 percent to 541 rupees.