Indian Stocks Advance as Hindustan Unilever Soars on Fund Shift

Indian stocks rebounded from the biggest drop in two weeks after Hindustan Unilever Ltd. surged to a record and as the government approved plans to ease foreign investment rules to boost growth.

The S&P BSE Sensex added 0.5 percent to 19,948.73 at the close in Mumbai, after falling the most since July 3 yesterday. Hindustan Unilever, India’s biggest home-products maker, soared 9.9 percent, pacing a rally among consumer stocks. Cigarette maker ITC Ltd., which has the highest weighting on the index, and Tata Consultancy Services Ltd. advanced to all-time highs.

Investors are shifting funds to consumer stocks from banks after the Reserve Bank of India raised two interest rates to steady the rupee on July 15, according to Nirakar Pradhan, who manages $590 million as chief investment officer at Future Generali Life Insurance in Mumbai. The 11-member S&P BSE FMCG Index climbed to a record today even as the S&P BSE Bankex, a gauge of 13 lenders, closed at a 10-month low.

“Long-only funds are shifting to low-debt consumer stocks from sectors with higher leverage,” Pradhan said by phone.

Unilever offered 600 rupees a share to raise its majority holding in the Indian subsidiary to 75 percent from 52 percent. The open offer, which closed on July 4, increased Unilever’s holding to 67 percent as some shareholders opted not to sell. The Mumbai-based company has a 4.3 percent weighting in the Sensex, data compiled by Bloomberg show.

“Investor confidence in Hindustan Unilever is at a high after Unilever’s open offer,” said Pradhan. “The fact that the parent is putting so much money into its Indian arm shows the conviction in its business growth.”

ITC rallied 2.3 percent to 368.35 rupees, a record. Tata Consultancy rose 1.8 percent to all-time high of 1,678.5 rupees.

‘Asset Quality’

HDFC Bank Ltd., India’s biggest lender by value, declined 2.3 percent to 662.9 rupees after exchange filings showed that net bad loans and provisions climbed in the three months ended June. Rival ICICI Bank Ltd. lost 2.3 percent to 980.25 rupees. State Bank of India, the nation’s largest by assets, retreated 1.2 percent to 1,806.7 rupees.

“HDFC Bank is beginning to see some pressure on asset quality,” said Vishal Narnolia, a banking analyst with SMC Global Securities Ltd. in Mumbai.

Policy changes approved yesterday permit foreign companies to own all of a phone carrier, and invest more than 26 percent in defense production on a case-by-case basis. The government is wooing funds needed to finance a record current-account deficit as the rupee sank to a record this month, and after the $1.9 trillion economy expanded at the slowest pace in a decade.

The rupee weakened 0.1 percent to 59.3475 per dollar at the close. It touched 59.045 earlier, the strongest level since July 1. The currency has rebounded 3.1 percent from a record low of 61.2125 touched July 8.

Sensex Outlook

The Sensex has risen 2.7 percent this year, versus a 9.6 percent drop in the MSCI Emerging Markets Index. The Indian gauge trades at 13.4 times estimated 12-month earnings, higher than benchmark measures in Brazil, Russia and China.

The Sensex will reach a record this year as pre-election spending sends company earnings to an all-time high. The gauge will climb 6.5 percent to 21,150, exceeding its closing record of 21,004.96 in November 2010, according to the average estimate in a Bloomberg survey of eight strategists at firms from BNP Paribas SA to Deutsche Bank AG.

The CNX Nifty Index on the National Stock Exchange of India Ltd. gained 0.3 percent to 5,973.30. India VIX, which measures the cost of protection against losses in the Nifty, rose 2 percent.