India’s Sensex Rises to Seven-Month High on Earnings Outlook

  • Hindalco soars as profit doubles; Tata Motors reports today
  • Profits at 15 Sensex firms have beaten or matched estimates

Indian stocks climbed for a fifth day, led by utilities and automakers, amid optimism about the outlook for company earnings and increases in regional equities.

Coal India Ltd., the world’s top producer, gained the most in three months after raising prices. Hindalco Industries Ltd., an aluminum maker, jumped the most in seven years after its profit more than doubled. NTPC Ltd., the largest power generator, posted the steepest climb in two months after posting earnings that beat estimates. Tata Motors Ltd. was the best performer on the S&P BSE Sensex before its earnings due Monday.

The Sensex added 0.3 percent at the close in Mumbai, extending last week’s 5.3 percent rally, the steepest since March. A recovery in corporate profits after a drop in four of the last five quarters and forecast for above-average rainfall following back-to-back droughts has boosted confidence in Asia’s fourth-biggest stock market. Overseas funds bought $98 million of domestic stocks on May 27, taking the month’s inflow to $324 million.
“We’re seeing the green shoots of recovery in corporate earnings,” D. K. Aggarwal, chairman of SMC Investments Pvt. in New Delhi, said by phone. “Plus, there’s stability on the global front. We have all the positive factors going for us.” He is advising clients to buy shares of lenders and companies linked to building infrastructure.

Earnings Scorecard

Fifteen out of 28, or 54 percent, of the 30 Sensex companies that have reported March-quarter earnings have beaten or matched estimates. That compares with 53 percent in the three months ended December. Sales have increased 5 percent year-on-year after five straight quarters of declines, data compiled by Bloomberg show.

Showers in the June-September season starting June 1 are seen at 109 percent of the mean of about 89 centimeters (35 inches), Skymet Weather Services Pvt., a New Delhi-based private forecaster, said last week. That’s more than the quantum forecast by the state weather office and would be the highest since 1994.

Coal India surged 4 percent, the most since Feb. 26. Investors ignored the company’s earnings, which missed analysts’ estimates amid oversupply of the fuel, as the miner raised prices for the first time in three years.

Hindalco jumped the most since May 2009. Net income rose to 3.56 billion rupees in the March quarter from 1.60 billion rupees a year earlier. NTPC climbed 2.5 percent after its fourth-quarter profit of 27.2 billion rupees exceeded the estimated 24.3 billion rupees.

Pricey Market

The rally has pushed up the Sensex’s 14-day relative strength index to 69, near the 70 threshold that some investors see as a signal to sell. The gauge is valued at 16.5 times 12-month projected earnings, compared with its five-year mean of 14, and a multiple of 11.6 for an index of emerging markets.

That’s prompting some investors to say that the gains may have outpaced the outlook for earnings.

“Earnings are recovering and some high-frequency data points have turned positive, but the evidence isn’t big and broad enough,” Gautam Chhaochharia, head of research at UBS Securities India Pvt. in Mumbai, said in an interview. “I’m bullish on India with a three-year perspective” but the market could drop “if the global risk-on trade doesn’t remain as strong as it’s been in the past two months,” he said.

The S&P 500 Index on Friday posted its biggest week since March 4 as data from from housing to jobless claims eased concerns that growth is too weak to withstand higher rates. The gain sent the index to a five-week high, erasing losses sparked by increasing anxiety that the Fed stands ready to tighten as soon as June.

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