India’s benchmark stock index notched its biggest gain in three months as wholesale prices dropped by the most on record, fueling bets that central bank Governor Raghuram Rajan will cut interest rates.
Vedanta Ltd., the biggest copper producer, rebounded from a six-year low. Reliance Industries Ltd., owner of the world’s largest refining complex, surged the most in three weeks. State Bank of India and ICICI Bank Ltd. jumped more than 3.5 percent each, while Glenmark Pharmaceuticals Ltd. advanced to a record after being added to the MSCI India Index. The rupee rebounded from a two-year low.
The Sensex rallied 1.9 percent to 28,067.31 at the close Friday, the best performer in Asia. For the week, it declined 0.6 percent. The drop in wholesale prices came after data on Wednesday showed retail inflation was lower than estimated. Speculation that India is less vulnerable to a slowdown in China and the rising cost of dollar financing has made the Sensex the biggest gainer among the four largest emerging markets in the past two months. The rupee has weakened less than other developing Asian currencies in the past month.
“India is the only place in the emerging world where we are seeing an industrial pick up while inflation is falling, and the rupee has been really stable compared to the some of the moves we are getting elsewhere,” Jonathan Garner, head of Asia and emerging-market strategy at Morgan Stanley in Hong Kong, said in an interview with Bloomberg TV on Friday.
The 52 percent plunge in Brent prices over the past year has helped cool India’s retail inflation, improved government finances and allowed Rajan to cut borrowing costs three times in 2015. Wholesale prices fell 4.05 percent in July from a year earlier, data showed on Friday, the steepest fall in readings going back to 2005.
Consumer-price gains slowed to 3.78 percent in July, the lowest reading since November, data released Wednesday showed. Rajan left the key rate unchanged on Aug. 4 as he sought more clarity on the impact of poor rains on food inflation, and the timing and the extent of an expected increase in U.S. rates.
“The enormous fall in commodity prices helps India to the top of the tree,” Garner said. India is Morgan Stanley’s top pick among emerging markets, he said.
Even so, international investors pulled $440 million from local stocks in the week through Aug. 13, the most since the period ended May 1, as the stalling of the national sales tax bill outweighed improving economic data and China’s yuan devaluation roiled emerging markets.
Reliance and Vedanta jumped 3.6 percent each Friday. The rally pared Vedanta’s weekly loss to 17 percent, still the biggest since September 2008.
Cipla Ltd. climbed to a four-month high. The drugmaker will probably report first-quarter profit climbed 42 percent from a year ago to 4.3 billion rupees ($66 million), according to the median estimate of 25 analysts in a Bloomberg survey. The stock increased 1.9 percent.
Hindalco Industries Ltd. gained 2.6 percent, rebounding from a one-year low. The aluminum maker reported first-quarter profit of 1.07 billion rupees, missing the 1.62 billion rupees estimates of 19 analysts surveyed by Bloomberg.
Seventeen of the 29 Sensex firms, or 59 percent, that have reported June-quarter profits have matched or beaten estimates, compared with 40 percent in the March quarter.
Sun Pharmaceutical Industries Ltd., India’s most valuable drugmaker, added 2.1 percent to its highest since July 20. Glenmark surged 7.1 percent and Lupin Ltd. added 2 percent.
The Sensex has gained 2.1 percent this year and trades at 15.8 times projected 12-month earnings. The MSCI Emerging Markets Index is valued at a multiple of 11.1.