Indian Stocks Gain in Volatile Trading Before Derivatives Expire

  • Roll costs rise before derivatives expiry, signaling optimism
  • Foreigners buy $1.3b of shares in July, surpass June’s $771m

Indian equities climbed in volatile trading as overseas investors added to their purchases amid optimism central banks remain supportive of growth.

ICICI Bank Ltd., the country’s biggest private lender, advanced to its highest level since December. Maruti Suzuki India Ltd. and Tata Motors Ltd. were among the best performers on the S&P BSE Sensex. Reddy’s Laboratories Ltd. slid the most in eight months, adding to Tuesday’s losses after the drugmaker’s first-quarter group profit slumped 76 percent.

About three stocks rose for every two that fell on the gauge, which added 0.2 percent at the close after changing direction a dozen times before the monthly derivatives contracts lapse Thursday. The roll cost, or the price traders are paying to replace July futures with August securities, was 64 basis points at 4 p.m. in Mumbai, the second-highest level since December a day before expiry, according to data compiled by Bloomberg. That’s a sign of bullishness to India Infoline Ltd.

“The high roll costs show that some investors who were left out are catching up,” Sanjiv Bhasin, executive vice president of markets at the brokerage, said by phone. “Markets are showing no signs of relenting, buoyed by an upsurge in global liquidity.”

Inflows

The Sensex is set for a fifth month of gains, fueled by $1.3 billion of inflows from abroad in July, as above-normal rain improves the outlook for economic growth and food prices after back-to-back drought. Foreigners have been net buyers in every month since March, the quickest pace since November 2014, amid optimism emerging markets will gain from coordinated efforts by global central banks to contain the fallout from the Brexit vote.

Developing-markets stocks rose toward the highest level since China’s yuan devaluation last year. Japanese Prime Minister Shinzo Abe announced plans for more than 28 trillion yen ($265 billion) in stimulus to prop up the nation’s economy. His announcement came hours before the Federal Reserve discusses the path of its monetary policy.

“Valuations are expensive but liquidity stands above valuations and fundamentals," said C.A. Rudramurthy B.V., head of research at Vachana Investments in Bengaluru. “Liquidity from the Bank of Japan will help markets go higher. Also, people are speculating that the Fed’s rate hike may get deferred to next year.”

The Sensex is valued at 16.4 times 12-month projected earnings, the most expensive in 15 months.

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