Sensex Climbs to 20-Month High After U.S. Budget Progress

Indian stocks climbed to a 20-month high and the rupee rose after the U.S. Senate passed a budget deal seeking to undo tax increases that took effect today.

The BSE India Sensitive Index, or Sensex, advanced 0.8 percent to 19,580.81, the highest close since April 25, 2011. Aluminum producer Hindalco Industries Ltd. jumped 2.8 percent, leading metal stocks higher after prices climbed in London. Bharat Heavy Electricals Ltd. increased for a third day, adding 1.9 percent.

The legislation, passed this morning, would make permanent the tax cuts for most U.S. households that expired at midnight, continue expanded unemployment benefits and delay automatic spending cuts for two months. The Sensex climbed 26 percent in 2012, the most since an 81 percent surge in 2009, as the Indian government took steps to open the economy to foreign investment and domestic stocks attracted Asia’s biggest overseas inflows.

“This agreement clears the air to a large extent and gives more confidence to emerging-market equity investors,” Aneesh Srivastava, who oversees $475 million as the chief investment officer at IDBI Federal Life Insurance Co. in Mumbai, said by phone. “Indian stocks need support not just from local policymakers but also from global markets for the rally to continue.”

The U.S. budget accord emerged from an agreement yesterday between Vice President Joe Biden and Senate Minority Leader Mitch McConnell to stave off more than $600 billion in tax increases and federal spending cuts, or the so-called fiscal cliff, set to begin this month. The 157-page bill now moves to the House for consideration.

The U.S. took in 11 percent of India’s exports in the six months ended September 2011, commerce ministry data show.

Rupee, Bonds

The rupee gained on optimism any success in preventing tax increases in the U.S. will spur fund flows into emerging-market assets. The currency rose 0.6 percent to 54.6850 per dollar in Mumbai at the close, data compiled by Bloomberg show. It slid 3.5 percent last year, the worst performance after Indonesia’s rupiah among Asia’s 10 most-used currencies excluding the yen.

India’s 10-year bonds increased the most in five months, sending the yield to a two-year low, after the government deferred a debt auction previously scheduled for this week. Bonds also gained after the central bank said in a separate statement that it plans to purchase 80 billion rupees of debt at an open-market auction on Jan. 4.

Metals Rally

The MSCI India Materials Index increased the most among the 10 industry groups of the MSCI India Index, adding 1.7 percent. Hindalco jumped 2.8 percent to 134.15 rupees, its highest close since March 21. Sterlite Industries (India) Ltd., the largest copper producer, added 1.9 percent to 118.90 rupees. Three-month delivery copper rose 0.6 percent on the London Metal Exchange yesterday. Zinc, tin and aluminum also climbed. Jindal Steel & Power Ltd. rallied 3 percent to 461.05 rupees, making it the best performer on the Sensex today.

A gauge of industrial stocks was the second-biggest gainer among the sectoral indexes. Bharat Heavy, the largest Indian power-equipment maker, rose 1.9 percent to 232.60 rupees. Larsen & Toubro Ltd. added 1.1 percent to 1,624.90 rupees.

The S&P CNX Nifty Index on the National Stock Exchange of India added 0.8 percent to 5,950.85, the highest close since January 2011. The BSE Mid-Cap Index climbed 1.2 percent to 7,197.58, the highest level in more than 20 months. India VIX, which measures the cost of protection against declines in the Nifty, sank 8.4 percent to 13.69, the most since Oct. 22.

Prime Minister Manmohan Singh overhauled policies starting mid-September, raising diesel prices and opening the economy to more foreign investment to lift growth from September quarter’s 5.3 percent, which matched a three-year low. The policies led to foreigners plowing a net $24.5 billion into local stocks in 2012, the highest among 10 Asian markets tracked by Bloomberg.

Last year’s rally has driven Sensex’s valuation to 15.5 times estimated earnings, the highest levels since March, data compiled by Bloomberg show. The MSCI Emerging Markets Index trades at a multiple of 12.1.

Other markets in the region are closed today.

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