India Stocks Rally to 3-Month High on Inflation, Monsoon Outlook

  • Mahindra, Bajaj Auto soar as rural demand seen reviving
  • Retail prices rise less than forecast; factory output grows

Indian stocks rallied to a three-month high as retail inflation eased more than estimated, the weather office predicted above-normal showers and Asian equities surged as Chinese trade data added to signs of a pickup in the world’s second-largest economy.

Mahindra & Mahindra Ltd., the largest tractor producer, jumped the most in five years. ICICI Bank Ltd. was the best performer on a gauge of lenders, which rallied to a three-month high. Bajaj Auto Ltd. jumped to a record, while Maruti Suzuki India Ltd. advanced the most in three weeks. Wipro Ltd. rose to a six-month high after the software exporter said it would buy back its shares.

The S&P BSE Sensex climbed 1.9 percent to its highest close since Jan. 1, with the gauges of small and medium-sized companies rising to three-month highs as the rally spread to the broader market. Consumer prices in March climbed less than the 5 percent forecast in a Bloomberg survey of analysts. The data came after the weather office said Tuesday that the monsoon may be above normal this year after back-to-back droughts hurt crops and led to higher food prices.

“The monsoon forecast has brought in optimism,” Mahesh Nandurkar, a strategist at CLSA Asia-Pacific Markets in Mumbai, said in an interview to Bloomberg TV India. “A good monsoon will help accelerate the agriculture-sector GDP, and the overall economy will improve on the back of that. We are excited about the rural consumption plays.”

Factory Output Grows

India’s farm sector, which makes up about 20 percent of the nation’s economy, can grow as much as 6 to 7 percent, contributing between 50 to 100 basis points to the growth in the overall gross domestic product, Nandurkar said.

Reserve Bank of India Governor Raghuram Rajan, who cut interest rates last week, wants to limit consumer inflation to 5 percent by March 2017, and said good rains could lead to further monetary easing. Data also showed factory output growth accelerated in February.

The July-September monsoon rains are crucial to keep prices in check as it accounts for about 80 percent of India’s total rainfall and waters more than 50 percent of farmland.

Earnings Outlook

Two years of dry weather curbed rural demand, which contributed to the drop in Sensex company earnings in four of the last five quarters. Analysts estimate profit expansion of 3.1 percent for the Sensex firms in the March-quarter season, which begins with Infosys Ltd. on Friday.

Mahindra & Mahindra rallied 7.5 percent, the most since March 1, 2011. Bajaj Auto increased to its highest level since May 2008, when the company began trading without its investment companies. Hero MotoCorp Ltd. advanced to its highest price since December 2014. Maruti rallied 4.4 percent.

Foreigners bought $23.5 million of local stocks on April 11, taking this year’s inflows to $1.1 billion. The Sensex has retreated 1.9 percent this year and trades at 15.8 times 12-month projected profits versus 11.9 for the MSCI Emerging Markets Index.

Indian markets are closed Thursday and Friday for public holidays.

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