Indian stocks climbed the most in a week after Finance Minister Palaniappan Chidambaram said there is no serious threat of a cut in credit rating and more policy measures will be implemented to revive the economy.
The BSE India Sensitive Index, or Sensex, rose 0.9 percent at 18,804.75, the steepest advance since Oct. 4. Infosys Ltd., the second-largest software maker, jumped 1.2 percent before its earnings report tomorrow. Larsen & Toubro Ltd., the biggest engineering company, climbed to a one-month high.
Standard & Poor’s yesterday warned that India may lose its investment-grade rating within two years if economic expansion slows and political opposition to policy overhauls increases. Talk of ratings cut is taken seriously and there will be more policy reforms in the next 24 months, the time line provided by S&P, Chidambaram told reporters in Tokyo today.
“The Finance Minister has signaled economic reforms will be pursued with more vigor,” Gaurang Shah, assistant vice president at Geojit BNP Paribas Financial Services Ltd., said by phone from Mumbai. “We expect sustained reforms to fire up capital investments and help the country achieve an 8 percent GDP growth rate.”
Prime Minister Manmohan Singh’s government has implemented a wave of policy changes since mid-September, including cutting fuel subsidies and opening retailing and airlines to overseas investments, as it seeks to revive growth. The government today changed the way fertilizer producers get subisidy payments, and a panel will tomorrow submit a report to Singh on freeing sugar prices from state control.
India’s GDP will increase 4.9 percent in 2012, the least in a decade, Washington-based International Monetary Fund said Oct. 9. Quarterly growth slowed to an average of 5.4 percent in the first half of 2012, from 7.5 percent in 2011, according to the most recent government data.
“I’m skeptical about the IMF’s forecast given that India has shown time and again that with a few fairly simple policy moves you can ratchet up growth very fast,” Arjuna Mahendran, the Singapore-based head of Asia investment strategy at HSBC Private Bank, which oversees $500 billion, told Bloomberg TV India today. “The IMF may have got it wrong this time.”
Larsen gained 2.3 percent to 1,653.15 rupees, the highest level since Sept. 9. HDFC Bank Ltd., the second-largest lender by value, rose 1.1 percent to 624.85 rupees. ITC Ltd. rose 0.9 percent to 283.5 rupees.
The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. gained 1 percent to 5,708.05. Its October futures traded at 5,745.55. The BSE-200 Index added 1.1 percent while the BSE Mid-Cap Index rose 1.2 percent.
India faces at least a one-in-three chance of a downgrade, S&P said yesterday, reiterating comments made in April when the agency lowered the outlook on the nation’s rating to negative. India is rated BBB- by S&P, one level above junk and the lowest in the BRIC group, which also includes Brazil, Russia and China.
“We will convince them that India does not deserve a downgrade, and in terms of growth and potential for growth, India is way above most countries of the world,” Chidambaram said in Tokyo. “Twenty four months is a long time. You will see a lot of reform, a lot of change.”
Infosys rose 1.2 percent to 2,533.2 rupees. The company may report second-quarter net income of 23.79 billion rupees, 25 percent increase from a year ago, according to the median of 37 analysts’ estimates.
Indian companies will start reporting earnings this week for the September quarter, beginning tomorrow with Infosys.
Profits at 40 percent of the 30 Sensex companies missed estimates in the June quarter, compared with 30 percent in the three months ended March and 47 percent three months earlier, according to data compiled by Bloomberg.
“Analyst downgrade of corporate earnings growth forecasts have plateaued,” Mahendran said. “There’s a fair chance after this earnings season, we can see an inflection and we can see earnings expectation improve somewhat, which has not been the case for the past three years.”
The Sensex jumped 7.7 percent in September, the biggest monthly advance since January, taking its valuation to 15.1 times estimated earnings on Oct. 4, the highest level in six months. The gauge has surged 22 percent this year as foreigners bought a net $17.7 billion of local stocks, the most among 10 Asian markets tracked by Bloomberg, excluding China.