Tata Motors, Yes Bank Drive India Stocks to Near Record on Flows

  • Emerging market stocks rally as Fed rate-hike bets diminish
  • Tata Motors top performer on Sensex; Yes Bank reaches record

Automakers and lenders lifted Indian stocks to near a record as emerging-market equities rallied after a slowdown in U.S. job creation dimmed the prospects of an interest-rate rise this month.

The S&P BSE Sensex led gains among developing-country peers and the NSE Nifty 50 Index closed 0.6 percent below its March 2015 record as trading resumed after a holiday.

IndexChangeHighest Since
Sensex+1.6%April 13, 2015
Nifty+1.5%Within 0.6% of March 2015 Peak
Bankex+3%Jan 27, 2015

Indian stocks capped their best week in two months Friday as investors faced with near-zero rates in the developed world hunt for higher-yielding assets. Asia’s third-biggest economy expanded 7.1 percent in the April-June quarter from a year earlier, the fastest among major economies, official data showed last week.

“With half the debt in the world carrying negative interest rates, flows to emerging markets have accelerated as investors look for higher returns,” said Amit Shah, chief executive officer and co-founder at IIFL Asset Management Ltd., which has $13.5 billion in global assets under management and advisory. “While overseas investors are happy with 1 percent to 2 percent growth, India’s growth rate of 7 percent should make them ecstatic.”

Global equities have gained ground since U.S. payrolls data on Friday helped damp the chances of a U.S. interest rate increase this month. Futures showed the likelihood of a September rate increase at 32 percent and 59 percent by December, compared with 34 percent and 60 percent on Thursday, the day before the employment data.

Foreigners bought $222 million of Indian equities last week, extending the year’s inflow to $6.1 billion, the most in Asia after Taiwan and South Korea, data compiled by Bloomberg show. Domestic funds pumped $248 million into stocks last week, ending eight weeks of withdrawals, the data show.

“There’s a gush of overseas money in search of higher yields and India is perhaps the only market in Asia offering prospects of sustainable growth,” Chokkalingam G., managing director at Mumbai-based Equinomics Research & Advisory Pvt., said by phone.

  • Tata Motors Ltd., owner of Jaguar Land Rover, rallied to the highest in 19 months. The company secured an order for more than 5,000 buses from state and city governments, according to an exchange filing. Maruti Suzuki India Ltd., the largest carmaker, and two-wheeler producer Hero MotoCorp Ltd. climbed to records.

  • Axis Bank Ltd., ICICI Bank Ltd., State Bank of India were among the best performers on the Sensex. Yes Bank Ltd. jumped 3.8 percent to a record. The lenders drove the S&P BSE Bankex index to its highest level since January 2015.

The 26 percent rebound in the benchmark indexes from their lows in February has pushed up valuations. The Sensex is valued at 16.7 times projected 12-month earnings, the most expensive since January 2011 and the higher than the five-year mean of 14.4, according to data compiled by Bloomberg. The MSCI Emerging Markets Index trades at a multiple of 12.

The gauges of small- and mid-cap companies are trading at more than twice the valuation of the main indexes.

“Valuations are a concern but we expect the large-cap laggards to catch up as company earnings improve, tax collections increase and inflation ebbs,” Chokkalingam said.

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