Overseas funds bought the most Indian shares last week since February as the nation reduced interest rates for the third time this year and developed markets maintained or bolstered stimulus programs.
Foreigners bought $802 million more of local stocks than they sold in the week ended May 3, the most since the period ended Feb. 8, data from the regulator show. They purchased a net $171 million of stock yesterday, taking this year’s net inflows to $12 billion, the second-largest among 10 Asian markets tracked by Bloomberg, behind Japan. The flows have helped the benchmark S&P BSE Sensex rebound 9.1 percent from a seven-month low reached April 9.
The Sensex capped a third week of gains May 3, its longest stretch of weekly advances since December, as the Reserve Bank of India cut rates by 25 basis points. Lower borrowing costs from Europe to the U.S. and Japan have stoked inflows into India. The European Central Bank trimmed rates to a record low last week and the Federal Reserve said it will keep buying $85 billion of bonds a month to stimulate the U.S. economy.
“India continues to be a big beneficiary of the easy monetary policy that global central banks are following,” Arun Kejriwal, director at Kejriwal Research & Investment Services, said by phone from Mumbai. “So long as global liquidity remains strong, flows are likely to continue.”
The Sensex rallied 1.1 percent to 19,888.95 today, the highest close since Jan. 31. While the RBI cut key rates last week, Governor Duvvuri Subbarao said in an interview with Bloomberg TV India May 4 that the odds of further easing to spur growth are “practically non-existent.”
The RBI lowered the repurchase rate to 7.25 percent from 7.50 percent after data April 15 showed that the wholesale-price index, a measure of inflation, slowed to a 40-month low in March. India is the only major emerging nation to cut interest rates this year.
Expectations of a rate cut were boosted after brent oil slid last month below $100 a barrel for the first time since July and gold fell the most since 1983, lowering the cost of importing the two items that fueled India’s record current-account gap in the last quarter of 2012. India imports more than 80 percent of its oil and is the world’s largest bullion buyer.
The shortfall in the nation’s current account, along with elevated prices, has deterred the RBI from easing monetary policy at a faster pace even as growth in Asia’s third-biggest economy slowed to a decade low in the last fiscal year.
The Sensex has risen 2.4 percent in 2013 and trades at 13.7 times projected 12-month profits, compared with the MSCI Emerging Markets Index’s multiple of 10.6. The Bank of New York Mellon index of Indian company American depositary receipts is up 2.8 percent this year. It rallied 2.9 percent last week.
Foreigners have been net sellers of Indian stocks in just two of the past 13 years, based on data compiled by Bloomberg going back to 2000. Inflows climbed to a record $29.3 billion in 2010, making the Sensex the best performer among the world’s 10 biggest markets that year. The largest-ever outflow in 2008, during the global financial crisis, triggered the biggest annual slump in the gauge of 52 percent.