Modi’s Pay Increase for India Federal Staff Fuels Sensex Rally

  • Sensex jumps most in Asia as auto, consumer companies shine
  • Consumption to help boost demand ‘robustly’: Deutsche Bank

India’s benchmark equities index climbed to a 13-month high as automakers and consumer companies rose amid speculation payment of past dues to government staff this week will stoke sales of cars and appliances.

The S&P BSE Sensex capped its biggest advance in seven weeks at the close in Mumbai, the most among Asian benchmark indexes. Gains in emerging-market stocks, following a rally in U.S. equities to near a record on Monday, aided sentiment and put the Sensex on course for its sixth monthly increase.

Index Change LevelHighest Since
Sensex +1.6%28,343.01July 23, 2015
Nifty +1.6%8,744.35April 15, 2015
S&P BSE MidCap+0.8% 13,168.39Record level
S&P BSE Smallcap+1%12,626.09Record level
S&P BSE Auto Index+1.8%21,931.04Record level
S&P BSE Bankex+1.5%22,387.43March 5, 2015

As many as 10 million government employees and pensioners will received an additional 390 billion rupees ($5.8 billion) in their August paychecks, according to a Deutsche Bank report. Producers of appliances, two-wheeler makers and lenders would benefit the most from the extra money in the hands of consumers, the bank said. Much of India’s world-beating economic growth has been driven by private consumption, which rose 7.4 percent in the year ended March, helping to offset the drag from declining exports.

“Government staff represent a strong demographic, so the arrears are expected to give a substantial impetus to spending at the margin,” Sunil Sharma, chief investment officer at Mumbai-based Sanctum Wealth Management Ltd., said by phone. “Investors are showing a preference for companies that are delivering on growth, leading to sectoral divergences.”

  • Auto stocks were the best performers on the Sensex. Maruti Suzuki India Ltd. rallied to an all-time high. The company sees festive season spurring double-digit growth, C.V. Raman, executive director, engineering, told reporters Tuesday. Two-wheeler maker Bajaj Auto Ltd. was the top gainer on the Sensex, while Hero MotoCorp Ltd. rose for a third day.

  • HDFC Bank Ltd. and ICICI Bank Ltd., the biggest private lenders, rose more than 2 percent each.

  • Asian Paints Ltd. paced a rally among consumer companies. Hindustan Unilever Ltd., the largest household products maker, climbed the most since July.  

  • Ramky Infrastructure Ltd. surged 3.9 percent after getting a 7 billion rupees contract from The National Highways Authority of India.

The Sensex has risen about 23 percent from a low in February as capital flows accelerated amid a wave of global policy easing and the forecast of a good monsoon promised a spurt in rural incomes after a two-year drought. Global funds have pumped in $5.8 billion so far this year, surpassing the $3.3 billion they invested in 2015 and the highest inflow in Asia after Taiwan and South Korea, data compiled by Bloomberg show.

The rebound has driven Sensex’s valuation to 16.4 times projected 12-month earnings, near the highest level since April 2015. The MSCI Emerging Markets Index is valued at a multiple of 12.5, data compiled by Bloomberg show.

“India looks set for a positive confidence shock, which should boost consumption and help buoy domestic aggregate demand robustly,” Deutsche Bank analysts Abhay Laijawala and Abhishek Saraf wrote in the report.

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