Oct. 31 (Bloomberg) -- Indian equities rebounded from a six-week low on speculation policy makers will take steps to stimulate economic growth.
The BSE India Sensitive Index, or Sensex, increased 0.4 percent to 18,505.38 at the close, the most since Oct. 22. The 30-stock gauge lost 1.4 percent this month, the worst monthly performance since May. Tata Motors Ltd., the owner of Jaguar Land Rover, advanced the most in a month. Housing Development Finance Corp., the largest home-loan lender, gained for the first time in four days.
The Sensex lost 1.1 percent yesterday, the steepest loss since Oct. 8, after the Reserve Bank of India refrained from paring interest rates to fight price pressures. While the RBI resisted Finance Minister Palaniappan Chidambaram’s call for cutting funding costs to back a recent policy revamp, the bank said there’s a “reasonable likelihood” of monetary easing in the first quarter of 2013 as inflation cools.
“We anticipate benchmark interest rates to be cut by 25 basis points in the first quarter,” Robert Aspin, Singapore-based investment strategist at Standard Chartered Bank, told Bloomberg TV India interview today. “By the end of 2013, rates will get down to around 7 percent.”
The RBI held the key repurchase rate at 8 percent even as it cut the lenders’ reserve ratio, injecting 175 billion rupees ($3.2 billion) into the financial system to revive growth from the weakest level since 2009. The benchmark rate has been pared only once -- a 50 basis point decrease in April -- after it was raised by a record 375 basis points through 2010 and 2011. The inflation rate has averaged 8.6 percent the past three years.
Consumer prices may accelerate to 8 percent in the quarter ending December and ease to 7.5 percent in the three months to March 2013, the central bank forecast yesterday. The RBI pared its growth estimate for this fiscal year to 5.8 percent from 6.5 percent on slowing investment and consumer spending.
Tata Motors jumped 2.9 percent to 254.75 rupees, the most since Sept. 28. HDFC added 1.6 percent to 762.35 rupees. Dr Reddy’s gained 1.9 percent to 1,756.5 rupees, the highest close in more than a month.
The Sensex has increased 20 percent this year, driven by overseas fund purchases and government policy reforms announced since mid-September to revive the economy. Overseas funds sold $29 million of shares yesterday, a third day of net sales, data from the market regulator show. Foreign funds have bought a net $18 billion of local shares this year, the most among 10 Asian markets tracked by Bloomberg, excluding China.
The Sensex is valued at 14.8 times estimated earnings, compared with a multiple of 11.5 times for the MSCI Emerging Markets Index, data compiled by Bloomberg show.
“In terms of current valuations, the market has run up quite significantly,” Standard Chartered’s Aspin said. “Many stocks are looking overbought. We would be looking for better buying opportunities in the next couple of weeks.”
The S&P CNX Nifty Index of 50 companies jumped 0.4 percent to 5,619.70. The BSE-200 Index added 0.5 percent and the BSE Mid-Cap Index gained 0.9 percent. The National Stock Exchange of India and the BSE Ltd. traded 820 million shares yesterday, lower than the 12-month daily average of 912 million shares.
The India VIX, which gauges the cost of protection against declines in the Nifty, sank 5.1 percent to 14.40, the most since Oct. 22.
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