Indian stocks climbed to the highest level in 14 months as foreign funds increased their holdings of domestic equities amid optimism the government will undertake measures to revive economic growth.
The BSE India Sensitive Index, or Sensex, rose 0.2 percent to 18,869.69, the highest close since July 25, 2011. Reliance Industries Ltd., owner of the world’s largest refining complex, gained the most in a week. Hindustan Unilever Ltd., the biggest home-products maker, added 2.3 percent.
Indian equities had their biggest monthly advance since January last month as foreign funds bought shares worth $4.1 billion amid a burst of policy announcements aimed at reviving an economy expanding at near its slowest pace in three years. Prime Minister Manmohan Singh in September cut fuel subsidies, opened retailing and airlines to foreigners and reduced a tax on local companies’ overseas borrowings.
“Flurry of announcements and the coordinated, thoughtful approach has surprised everybody and the markets,” Madhav Dhar, managing partner of GTI Capital Group, told Bloomberg TV India in an interview. “The nose of the plane is lifted up but we need to keep the engines going. We have to fire at all cylinders and I think we’re seeing signs of that.”
The Sensex has surged 22 percent this year as foreigners purchased a net $16.2 billion of equities, the most among 10 Asian markets tracked by Bloomberg, which excludes China. The flows pushed up the rupee 5.3 percent in the three months ended September, the strongest quarterly gain since 2009 and the best performance among Asian currencies. The rupee rose 0.4 percent from Oct. 1 to 52.1650.
Yen-based investors who buy rupee-denominated assets will earn 15 percent, including interest, in a year, according to data compiled by Bloomberg. This would be the best gains among most-traded Asian currencies.
“Exchanging dollars into the mid-50s and buying Indian assets at depressed levels, and particularly in countries like Japan, exchanging yen to buy Indian assets in one of the great trades in history,” GTI Capital’s Dhar said. “On a longer term basis, the rupee is extremely undervalued. The fair value is closer to 40 than 52 or 53. Fair value is a long term, nebulous concept but it is an anchor on a longer term cycle.”
The S&P CNX Nifty Index increased 0.2 percent to 5,731.25. Its October futures settled at 5,768.25. The BSE-200 Index rose 0.3 percent to 2,325.53. The National Stock Exchange of India and the BSE Ltd. traded 889 million shares on Oct. 1, equivalent to the 12-month daily average.
Reliance Industries gained 1.5 percent to 846.1 rupees. Tata Consultancy Services Ltd., the largest software services exporter, increased 1.5 percent to 1,322.65 rupees. Hindustan Unilever rose 2.3 percent to 555.5 rupees. Hindalco Industries Ltd. added 1.5 percent to 124.7 rupees. Coal India Ltd. rose 2.1 percent to 365.2 rupees.
The Sensex trades at 15 times estimated earnings, the most expensive since March 30. The ratio is still below the gauge’s three-year average of 16.3, data compiled by Bloomberg show. The measure’s 14-day relative strength index is at 73. Some investors see readings above 70 as a signal to sell.
“I would still say valuations are attractive but we have had a very sharp move and you might see some consolidation,” said Dhar. “As they say bull markets are born in despair, grow with cynicisms, mature with optimism and die with euphoria. We are somewhere between despair and cynicism. I’m not concerned valuations are stretched or an impediment to further moves.”
Infosys Ltd., the second-largest software services maker, declined 1.2 percent to 2,578.25 rupees. ITC Ltd., India’s biggest cigarette company, fell 1.1 percent to 270.25 rupees. Bajaj Auto Ltd., the second-largest motorcycle maker, dropped 1.6 percent to 1,781.25 rupees.
Jindal Steel & Power Ltd., India’s biggest steelmaker by value, plunged 4.9 percent to 415.4 rupees on a coal ministry proposal to bar utilities from selling electricity at market rates using coal from mines given to them for free.