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India’s Sensex Has Best Run in 18 Months on Stimulus Opti

Sept. 13 (Bloomberg) -- Indian stocks advanced, with the benchmark index completing its longest run of gains in about 18 months, amid expectation the U.S. Federal Reserve will unveil measures to boost economic growth.

The BSE India Sensitive Index, or Sensex, rose 0.1 percent to 18,021.16 at the close in Mumbai. The gauge has climbed 4.1 percent in seven days through today, the longest winning streak since March 31, 2011. Bajaj Auto Ltd., the second-biggest motorcycle maker, climbed for the third day this week. Bharat Heavy Electricals Ltd., the largest power-equipment maker, rose the most in a week.

The Federal Open Market Committee ends a two-day meeting today amid speculation it will introduce a third round of asset purchases amid slowing economic growth. Data may show tomorrow that Indian inflation accelerated to 7.05 percent last month from 6.87 percent in July, according to the median estimate of 34 analysts in a Bloomberg survey. The Reserve Bank of India meets for its next policy review on Sept. 17.

“There is expectation that the Fed may provide some fresh stimulus,” Sashi Krishnan, chief investment officer of Birla Sun Life Insurance Co., said in an interview in Mumbai today. “Every stimulus is having less incremental effect than the earlier one on the market.”

India’s benchmark wholesale price index has stayed above 5 percent since December 2009. RBI Governor Duvvuri Subbarao said Aug. 28 policy makers must reduce the inflation rate to “more acceptable levels” of 5 percent or less. Consumer prices rose 9.86 percent in July, faster than the 1.8 percent in China, 5.2 percent in Brazil and 5.6 percent in Russia, data compiled by Bloomberg show.

Oil Imports

Subbarao left the benchmark repurchase rate at 8 percent for a second meeting in July, stating he’s willing to sacrifice growth to control inflation. India imports 80 percent of its oil and pays for supplies in dollars. Brent, the benchmark for India, has risen 19 percent since July 1, heading for its best quarterly rally in six, data compiled by Bloomberg show.

“It’s time for the RBI to act but the dilemma has been for a little while now as all this quantitative easing helps commodity prices, particularly oil, and that’s negative for India,” Andrew Holland, chief executive officer of investment advisory at Ambit Capital Pvt. in Mumbai, said in an interview to Bloomberg TV India today. “The Reserve Bank has said that the ball is in the government’s court to tackle inflation and the fiscal deficit. Unless we get a concrete plan from the government, it is going to be hard for the RBI to cut rates.”

India’s factory output grew 0.1 percent in July, less than the 0.5 percent increase estimated by economists in a Bloomberg survey, data released yesterday show. Gross domestic product expanded 5.5 percent from a year earlier in the June quarter, close to a three-year low of 5.3 percent in the first quarter.

Industrials Advance

Bajaj Auto climbed 1.3 percent to 1,714.65 rupees. ICICI Bank Ltd. rose 1.1 percent to 959.45 rupees. Bharat Heavy Electricals rallied 1.5 percent to 200.5 rupees.

Jindal Steel & Power Ltd., the third-largest producer of the alloy by value, declined 1.4 percent to 341.9 rupees. Cipla Ltd., India’s second-biggest drugmaker by market value, slid 2.6 percent to 369.6 rupees.

The Sensex has climbed 17 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 $105 million of shares yesterday, taking investments this year to $12.8 billion, data from the markets regulator show. The Sensex trades at 14.3 times estimated earnings, compared with the MSCI Emerging Markets Index’s 11 times.

The S&P CNX Nifty Index rose 0.1 percent to 5,435.35 and its September futures settled at 5,450.70. The India VIX gauge, which measures the cost of protection against losses in the Nifty, jumped 4.2 percent to 15.67. The BSE-200 Index was little changed at 2,184.98.

“If the Fed does something tonight then the market could push on to 5,600-5,700” on the Nifty, Ambit’s Holland said.

The National Stock Exchange of India Ltd. and BSE Ltd., India’s top two bourses, traded 787 million shares yesterday, 11 percent less than the 12-month daily average of 880 million.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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