Indian Stocks Rally to One-Year High as GST Fuels Optimism

  • Cabinet tweaks proposed taxbill, fueling hope it may be passed
  • Global funds buy $1.3b of shares in July in 5th month of flows

Indian equities climbed to the highest level in a year on sustained inflows from foreign investors amid optimism the government will be able to pass a national sales tax bill in parliament.

Gati Ltd. and VRL Logistics Ltd. paced gains among companies that are likely to benefit from the proposed goods and services tax. Asian Paints Ltd. jumped to a record after its first quarter profit gained 19 percent and the company raised the demand outlook. Maruti Suzuki India Ltd. and Housing Development Finance Corp. both rose to all-time highs.

The Sensex surged 0.7 percent at the close in Mumbai, reclaiming the highest level since August 2015. Prime Minister Narendra Modi’s administration met a key opposition demand on legislation that would clear the way for the goods-and-services tax, or GST, India’s most ambitious economic reform since the 1990s. The U.S. Federal Reserve left interest rates unchanged at the end of their meeting on Wednesday, spurring gains in emerging-market equities and currencies.

“Cabinet approving the GST amendment has led to optimism that the bill will go through," Anita Gandhi, a director at Arihant Capital Pvt. in Mumbai., said by phone. “The Fed kept rates unchanged overnight and our borrowing costs are not moving down immediately. So, the rate differential will continue, which is keeping foreign investor interest alive.”

Fund Flows

The benchmark index is headed for a fifth month of gains, fueled by $1.3 billion of inflows from abroad in July. Foreign funds have been net buyers in every month since March, the quickest pace since November 2014, as above-average rainfall improves the outlook for economic growth and food prices.

Gati rallied 6 percent to its highest level since Aug. 11. VRL Logistics climbed 3.6 percent and Allcargo Logistics Ltd. jumped 6.7 percent to its highest level since Dec. 30. Transport Corp of India Ltd. soared 7.2 percent to a record.

Asian Paints soared 6.2 percent, the best performance on the Sensex. First-quarter profit rose 19 percent from a year earlier and sales increased to 40.3 billion rupees from 36.6 billion rupees a year earlier.

Good rainfall after two straight years of deficiency is expected to boost rural demand for the company, Chief Executive Officer K.B.S. Anand said in an earnings call on Wednesday. The paintmaker expects to gain from the hike in salaries of federal staff announced in June, Anand said.

Maruti Suzuki added 4.5 percent to a record. HDFC and HDFC Bank Ltd., the nation’s most valuable lender, advanced to all-time highs. Sun Pharmaceutical Industries Ltd., India’s most valuable drugmaker, rose 2.2 percent.

The Sensex traded at 16.5 times 12-month projected earnings, the most expensive in 15 months.

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