India’s benchmark stock index had the sharpest gain in almost seven months on optimism declines in oil and gold prices will provide room for the central bank to cut interest rates. The nation’s bonds and the currency rose.
The S&P BSE Sensex index jumped 2.1 percent to 18,744.93 at close, the best performance in Asia and the biggest advance since Sept. 21. HDFC Bank Ltd., the second-biggest non-state lender, paced gains among its peers. Maruti Suzuki India Ltd., India’s largest passenger carmaker, led auto stocks higher. The yield on 2022 government bonds fell to a seven-week low intraday and the rupee rose the most in a month.
Brent crude traded below $100 a barrel for the first time since July and gold slumped the most since 1983 yesterday. The drop may help narrow the nation’s record current-account deficit and cool inflation, boosting scope for a rate cut, a central bank adviser said today. India buys more than 80 percent of its oil from abroad and is the world’s largest importer of bullion.
“The fall in oil, gold and silver is a macroeconomic game changer for us as we are a net buyer,” Gajendra Nagpal, chief executive officer at Unicon Financial Intermediaries Pvt., said from New Delhi. “When commodity prices fall, the rupee gains, inflation slows and concern about the current account deficit eases. Our liabilities have suddenly turned into positives.”
The yield on the 8.15 percent bonds due June 2022 ended little changed at 7.83 percent, after earlier falling as low as 7.8 percent, the lowest level since Feb. 27. The rupee added 0.9 percent to 54.145 per dollar, the most since Jan. 18.
HDFC Bank jumped 3.4 percent to 663.35 rupees, the most since June. ICICI Bank Ltd. surged 3 percent to 1,078.9 rupees and State Bank of India, the biggest state-run lender, added 1.7 percent to 2,183.1 rupees. Housing Development Finance Corp. surged 3.7 percent to 803.7 rupees.
Maruti increased 4.2 percent to 1,482.05 rupees. Mahindra & Mahindra added 3.9 percent to 844.85 rupees. Larsen & Toubro rose 3.3 percent to 1,427 rupees, the highest since March 20.
Reliance Industries Ltd., the second-biggest stock on the Sensex by weighting, rose 1.4 percent to 804.95 rupees before its earnings today. Profit in the March quarter grew to 55.9 billion rupees ($1.01 billion), from 42.4 billion a year ago, the company said after the market closed. That exceeded the 55.3-billion rupee median of 20 analyst estimates.
Reserve Bank Governor Duvvuri Subbarao said this month the current-account gap exceeds the desired level of 2.5 percent of GDP and is “worrying” because it comes amid slowing economic growth. While the RBI cut funding costs in March for a second time this year, it has said lingering inflation curbs the scope for further cuts.
The fall in commodities is “definitely positive,” Ashima Goyal, a member of the RBI’s technical advisory panel, said in a phone interview today. The panel makes recommendations to Subbarao on setting monetary policy.
“As inflation comes down as a result of commodity prices softening, policy makers can encourage growth more,” she said.
India’s benchmark wholesale-price inflation cooled to a 40-month low in March, official data showed yesterday, below the RBI’s end-March estimate of 6.8 percent.
Nomura Holdings Inc. sees an 80 percent probability that the RBI will reduce its 7.5 percent repurchase rate by 25 basis points at its May 3 review, it said in a note dated yesterday.
The Sensex has dropped 3.5 percent this year amid concern the weakest growth in a decade and the highest inflation rate among major emerging nations will curb profit growth. The index trades at 12.6 times projected 12-month profits, compared with this year’s peak of 13.8 times in January. The MSCI Emerging Markets Index trades at 10.1 times, the lowest since November.
Foreign funds bought a net $17.1 million of local shares on April 12, data compiled by Bloomberg show. They have bought a net $10.2 billion of stocks this year, data compiled by Bloomberg show. Inflows in 2012 were $24.5 billion, the most among 10 Asian markets tracked by Bloomberg.
Shares of gold-loan companies like Muthoot Finance Ltd. and Manappuram Finance Ltd., which are not part of the Sensex, plunged at least 10 percent.
The CNX Nifty Index jumped 2.2 percent to 5,688.95, rising above its 200-day moving average of 5,656 for first time since April 4. Its April futures settled at 5,696.35. India VIX, which measures the cost of protection against losses in the Nifty, fell 2.2 percent to 16.25.