Indian stocks climbed to a two-week high amid speculation the government will sustain policy steps to revive economic growth. Software makers and energy companies led the advance.
The BSE India Sensitive Index, or Sensex, rose 0.7 percent to 19,635.72, the highest close since Feb. 6, with most of the gains coming in the last hour of trade. Volumes in the measure were 35 percent below the 30-day average. Infosys Ltd., the second-biggest software exporter, increased to a 10-month high. Oil & Natural Gas Corp., the nation’s biggest state explorer, climbed to the highest level since Feb. 1.
India cut its annual borrowing program as Finance Minister Palaniappan Chidambaram curbed spending and raised $4 billion selling stakes in state companies to pare the fiscal deficit. The moves are part of a wider policy overhaul since September to revive an economy growing at the weakest pace in a decade. Chidambaram is due to present the federal budget on Feb. 28.
“There are some noises about the budget being better than expected and also the fact that the government borrowing has dropped is reassuring because it means the government will be able to meet its deficit targets without extra funds,” U.R. Bhat, managing director of Dalton Capital Advisors India Pvt. in Mumbai, said by phone from Mumbai.
The government canceled a 120 billion rupee ($2.2 billion) bond sale due for Feb. 22, the last for the year, according to a statement from the finance ministry yesterday. Prime Minister Manmohan Singh’s administration planned to borrow a record 5.69 trillion rupees this fiscal year before scrapping this week’s debt sale, according to budget documents.
Infosys gained 1.5 percent to 2,820.45 rupees, the highest close since April 9, 2012. ONGC increased 3.7 percent to 329.70 rupees. ICICI Bank Ltd., the nation’s third-biggest lender by value, added 0.8 percent to 1,131.4 rupees. Cipla increased 2.1 percent to 387.6 rupees, the largest rise since Feb. 11.
The CNX Nifty Index of the National Stock Exchange gained 0.7 percent to 5,939.7. India VIX, which measures the cost of protection against declines in the Nifty, sank 3 percent to 15.81, the biggest drop since Jan. 29.
Chidambaram, who last month addressed investors in Asia and Europe, is under pressure to limit spending and keep his pledge to reduce the deficit to 3 percent of gross domestic product in four years, from a targeted 5.3 percent for this fiscal year ending March. Officials are trying to avert a ratings downgrade after Standard & Poor’s and Fitch Ratings said last year that they may demote India to junk status, citing the shortfall and a widening current-account gap.
“We are encouraged but we have to wait to see how the government delivers on its promises,” Hugh Young, who helps manage about $70 billion of Asian equities at Aberdeen Asset Management Asia Ltd. in Singapore, told Bloomberg TV India today. “We have seen how previously the government took two steps forward and three steps back, which disconcerted foreign investors. The proof of the pudding will be in the eating.”
The Sensex has fallen 2.3 percent from a two-year high on Jan. 25 even as foreign funds plowed a net $7.92 billion into domestic stocks this year, the most among 10 Asian markets tracked by Bloomberg excluding China. The gauge is valued at 13.6 times estimated earnings for the year ending March 2014, down from the year’s peak of 13.9 times on Jan. 25, when the gauge closed at a two-year high, data compiled by Bloomberg show.