Indian Stocks Rally to Three-Month High on Rate Cut Speculation

Indian stocks jumped the most in Asia, with the benchmark index reaching the highest level in three months, before the Reserve Bank of India’s monetary policy review tomorrow.

The S&P BSE Sensex index advanced 1.2 percent to 19,735.77 at the close in Mumbai, its highest since Feb. 4. Indian markets were closed yesterday for a public holiday. State Bank of India, the nation’s biggest lender, paced gains among its peers. Larsen & Toubro Ltd., India’s largest engineering company, climbed to the highest level since Jan. 30.

The Sensex climbed the most since November last month as slowing inflation and a drop in gold and oil prices stoked speculation the central bank will cut borrowing costs tomorrow. The RBI may lower its key rate by 25 basis points, according to the median estimate of 40 economists in a Bloomberg survey.

“The rally today is led by interest-rate sensitive shares on expectations that the central bank will cut interest rates by 50 basis points tomorrow,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi, southern India, said in a phone interview. “A fall in global commodities prices is likely to see inflation trending down.”

The central bank will lower its repurchase rate to 7.25 percent from 7.5 percent tomorrow, according to 33 of 40 economists in a Bloomberg survey. Six see no change and one predicts a cut to 7 percent.

Bullion futures tumbled into a bear market April 12 and plunged 9.3 percent in the next session, the biggest drop in 33 years, while Brent, the benchmark for two-thirds of the world’s oil, dropped below $100 a barrel April 16 for the first time since July. India imports more than 80 percent of its oil needs and is the world’s largest bullion consumer.

Lenders Advance

State Bank added 1.6 percent to 2,299.45 rupees, halting a three-day drop. Housing Development Finance Corp., India’s biggest mortgage lender, rose 1.9 percent to 863.45 rupees. Larsen & Toubro surged 2.6 percent to 1,552.05 rupees.

Bharti Airtel Ltd., India’s largest mobile-phone operator, fell 0.6 percent to 316.75 rupees, paring an earlier 4.9 percent slump, after reporting quarterly profit that missed estimates. Net income fell to 5.09 billion rupees ($95 million) in the three months ended March 31, from 10.1 billion rupees a year earlier, the New Delhi-based company said today. That compares with the 7.6 billion-rupee median of 27 analysts’ estimates compiled by Bloomberg.

‘Worst Over’

“The worst may be over for Bharti,” Mathews said. “From here on, we expect Bharti’s numbers to improve in the subsequent quarters as competition in the sector is less intense and its smaller rivals have seen their earnings recover. Overall, the earnings season has not been as bad as earlier expected and that is providing support to the market rally.”

Profit at just two of the 12 Sensex companies that have reported March-quarter results has trailed analyst estimates. Net income at about 43 percent of the 30 index firms trailed forecasts in the three months ended Dec. 31, compared with 40 percent in the previous two quarters.

Infosys Ltd., India’s second-biggest software services provider, increased 2.3 percent to 2,286.7 rupees. Larger rival Tata Consultancy Services Ltd. jumped 4 percent to 1,433.9 rupees. Wipro Ltd. added 1.1 percent to 352.25 rupees.

The Sensex has rebounded 8.3 percent from a seven-month low reached April 9 amid expectation the central bank will bring down borrowing costs. The gauge is trading at 13.3 times projected 12-month profits, compared with the MSCI Emerging Markets Index’s 10.4 times.

The 50-stock CNX Nifty Index rose 1.2 percent to 5,999.35 while its May futures settled at 6,011. India VIX, which measures the cost of protection against losses in Nifty, soared 7.8 percent to 16.28.

Foreign funds bought a net $122 million of local shares on April 29, taking their net investment in equities this year to $11.15 billion, data compiled by Bloomberg show. Inflows last year totaled $24.5 billion, the most among 10 Asian markets tracked by Bloomberg, the data show.

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