India Stocks Climb to 3-Week High as Monsoon Spurs Rate-Cut Bets

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Indian stocks climbed to a three-week high, with the benchmark index extending last week’s advance, after a report on the monsoon’s progress bolstered expectations of a reduction in borrowing costs.

Tata Power Co., the biggest non-state generator, advanced to a two-week high, while Bajaj Auto Ltd. increased for a third day. Hindalco Industries Ltd., India’s second-largest aluminum producer, rose to a one-week high. Indian Oil Corp. paced gains among refiners after raising fuel prices. Gail India Ltd. was the best performer on the S&P BSE Sensex.

The Sensex jumped 1.3 percent to 27,687.30, the highest close since April 23. The weather bureau forecast on Sunday that the monsoon may set in over the southern state of Kerala on May 30, six days sooner than last year. The gauge capped a second weekly advance on Friday, May 15, amid speculation that slowing inflation will give Reserve Bank of India Governor Raghuram Rajan room to reduce interest rates for a third time in 2015.

“If the monsoon is normal, then the chances of a rate cut increase,” U.R. Bhat, a director at a local unit of U.K.-based Dalton Strategic Partnership LLP, which oversees $2 billion in assets, said in a phone interview. “There’s a good chance the RBI will cut interest rates with inflation falling.”

The 50-stock CNX Nifty index rose 1.4 percent to 8,373.65, and the benchmark gauge of option prices slumped the most since Feb. 28 to 17.9.

El Nino

The monsoon may advance further to remaining parts of the Andaman Islands and north Andaman sea in the next 48 hours, the weather office said. The agency last month forecast rainfall in the June-September period to be below average for a second year as an El Nino develops, likely hurting farm output and stoking food inflation in Asia’s third-largest economy.

Consumer prices climbed 4.87 percent in April from a year earlier, slowing from 5.17 percent in March, data showed last week. The next policy review is on June 2. Rajan refrained from lowering rates at a scheduled review on April 7 as he waited for lenders to pass on two previous rate cuts to customers.

“The main catalyst for India in the short term will be interest rates,” Andrew Holland, chief executive officer of Ambit Investment Advisors Pvt., said in an interview on Monday with Bloomberg TV India. “The governor should cut by 50 basis points. There’s no reason not to.”

The Sensex entered a so-called correction on May 7 after completing a 10 percent decline from its Jan. 29 record amid concerns about the pace of earnings growth and delays in the passage of key economic bills in parliament.

‘Not Disappointing’

While eight of the 14 Sensex companies that have reported results for the March quarter have beaten or matched estimates, profits will decline for a second straight quarter, forecasts compiled by Bloomberg show.

“The results season hasn’t produced big disappointments so far,” Taher Badshah, co-head of equities at Mumbai-based Motilal Oswal Asset Management Co., which has $330 million in assets, said in an interview with Bloomberg TV India on Monday. “The market’s taking heart in the fact that earnings, despite the challenges around, are not weakening as much as expected.”

Gail rallied 3.8 percent to its highest level since April 16. Hindalco climbed 1.5 percent and Bajaj Auto increased 1.6 percent, extending last week’s 3 percent advance. Drugmaker Dr Reddy’s Laboratories Ltd. climbed 3.6 percent, the most since April 6.

Gasoline Prices

Oil & Natural Gas Corp., the largest explorer, increased to a two-week high. Indian Oil climbed 2 percent, the most since April 30. Hindustan Petroleum Corp. rallied 4.1 percent and Bharat Petroleum Corp. increased 3.4 percent.

The refiners raised diesel prices by 2.71 rupees a liter and petrol by 3.13 rupees a liter after market hours on Friday.

The Sensex has gained 0.7 percent this year and trades at 15.3 times projected 12-month earnings, compared with 12.4 times for the MSCI Emerging Markets Index.

International investors bought a net $275 million of local stocks on May 15, the highest inflow since April 21. Foreigners have plowed about $6.8 billion into Indian equities this year, adding to $16 billion of purchases in 2014.