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Indian Stocks Rally on Monetary Easing Speculation; Metals Climb

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Dec. 18 (Bloomberg) -- Indian stocks advanced the most in three weeks as the central bank hinted it may ease monetary policy early next year even after it kept a key interest rate unchanged for a fifth straight meeting.

The BSE India Sensitive Index, or Sensex, rallied 0.6 percent to 19,364.75, the steepest gain since Nov. 30. Volumes in the gauge exceeded the 30-day average by 47 percent. Aluminum maker Hindalco Industries Ltd. led its peers higher, while State Bank of India gained 1.2 percent, erasing an intraday loss of 2.8 percent. Unitech Ltd. jumped 6 percent, the second-bigger gainer on the MSCI Emerging Markets Index.

The Bank of New York Mellon Corp. index of Indian American depositary receipts jumped 0.7 percent to 1,044.53 by 12:41 p.m. in New York, poised for the biggest one-day rally since Nov. 29.

Reserve Bank of India Governor Duvvuri Subbarao kept the nation’s repurchase rate at 8 percent and held the cash reserve ratio for lenders at 4.25 percent after a cut in October. Slowing growth and Prime Minister Manmohan Singh’s policy overhaul to revive growth may prompt the governor to respond to “threats to growth from this point onwards,” the central bank said.

“I don’t think it’s a lost opportunity and come January, we will see some action from the RBI,” Gautam Trivedi, head of equities at Religare Capital Markets Ltd., said by phone. Trivedi said he plans to add more stocks that may benefit from lower borrowing costs, including carmakers.

Subbarao has so far withstood calls from Finance Minister Palaniappan Chidambaram for lower rates to bolster an economy forecast by the government yesterday to expand at the slowest pace in a decade this fiscal year ending in March. The central bank’s next policy review is scheduled for Jan. 29.

Metals Rally

Hindalco climbed 2.6 percent to 127.45 rupees, its highest level in five months. Tata Steel Ltd., the biggest producer of the alloy, surged 3.8 percent to 414.3 rupees. JSW Steel Ltd., the third-largest producer, soared 5 percent to 804.95 rupees, the most since May 15. The 11-member BSE India Metal Index rose to the highest level since July 10.

State Bank of India added 1.2 percent to 2,372.7 rupees, its third rising day. Housing Development Finance Corp., the biggest mortgage lender, gained 1.2 percent to 846.85 rupees, snapping a four-day decline. Larsen & Toubro Ltd., the largest engineering company, added 1.4 percent to 1,656.95 rupees. Unitech soared 5.9 percent to 34.95 rupees.

Tata Motors Ltd., the owner of Jaguar Land Rover, gained 1.5 percent to 298.35 rupees. In New York, Tata Motors’ ADRs climbed 1.5 percent to $27.52, the highest level since May 11. Bharti Airtel Ltd., the largest mobile-phone operator, jumped 4.3 percent to 313.4 rupees.

Bharat Heavy Electricals Ltd., the biggest power-equipment maker, surged 4.2 percent to 230.2 rupees, halting a five-day, 9 percent plunge. CLSA Asia-Pacific Markets added the stock to its Asia ex-Japan long-only portfolio with a 3 percent weight, analyst Christopher Wood wrote in a note dated yesterday.

Growth Forecast

Stocks fell yesterday after the Finance Ministry cut its forecast for India’s growth to about 5.7 percent to 5.9 percent from an earlier estimate of as much as 7.85 percent. That would be the smallest gain since the year ended March 31, 2003, when gross domestic product grew 4 percent. The RBI on Oct. 30 cut its growth estimate to 5.8 percent from 6.5 percent and raised its inflation forecast to 7.5 percent by March from 7 percent.

While consumer-price inflation accelerated in November, reflecting higher food costs, the drop in core inflation has been “comforting,” the RBI said. “With inflation ebbing, monetary policy has to shift focus and respond to the threats to growth,” the authority said.

“The RBI has never said that it is against the rate cut, and today it has suggested that it will go by the data, not by market sentiment,” Hemant Kanawala, head of equities at Kotak Life Insurance Ltd., said by phone from Mumbai. “The debate is the timing of the cut and not if it will happen.” Kanawala said he will cut holdings of consumer goods stocks and add to those of banks and automakers.

Foreign Funds

The Sensex has risen 25 percent this year, headed for its biggest annual jump since 2009, as government policy steps to open the economy to offshore investment attracted foreigners. Overseas funds were net buyers of domestic stocks for a 23rd day yesterday, taking net purchases in 2012 to $22.5 billion, the highest among 10 Asian markets tracked by Bloomberg, excluding China, data compiled by Bloomberg show.

The S&P CNX Nifty Index on the National Stock Exchange of India surged 0.7 percent to 5,896.80, after falling by as much 0.6 percent immediately after RBI’s announcement. India VIX, which gauges the cost of protection against declines in the Nifty, fell 3.2 percent to 14.44.

The rupee was little changed from yesterday at 54.8525 per dollar at the 5 p.m. close, paring an intraday advance of 0.3 percent. The currency has fallen 3.6 percent this year after plunging 16 percent in 2011. Ten-year bonds climbed one basis point to 8.15 percent.

To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net; Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

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

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