Tata Motors Helps India Stocks End Two-Day Drop in Subdued Trade

  • India VIX drops to lowest since March 2015 as volatility ebbs
  • Volumes on Nifty 27 percent below 30-day average at close

Indian stocks reversed losses in the last hour of trade as Tata Motors Ltd. lead industrials higher and shares of medium-sized companies climbed to a record.

Tata Motors rallied the most in 15 months after giving a bullish guidance for Jaguar Land Rover sales. Larsen & Toubro, the largest engineering company, climbed the most in three weeks. Reliance Industries Ltd., owner of the world’s largest refining complex, capped its biggest two-day climb in nine months. JK Tyre & Industries Ltd. led tire companies higher amid a drop in prices of natural rubber, the main raw material.

Index Change Size and Scope
Sensex +0.4%Most since Aug. 12
Nifty +0.4%Ends two-day drop
S&P BSE MidCap+0.4%Record level

The S&P BSE Sensex traded in the negative territory for better part of the day amid concern flows to emerging markets may slow after Federal Reserve Chair Janet Yellen said the case for raising borrowing costs is getting stronger. Volumes on the NSE Nifty 50 Index down 27 percent from average levels, a signal that Monday’s gains may be shortlived.

“The spurt was led by index heavyweights as investors who had gone short got trapped," said C.A. Rudramurthy B.V., head of research at Vachana Investments Pvt. in Bengaluru. “There are no fresh buyers at these levels. We don’t see this short rally holding."

The Sensex has risen 22 percent from a low in February as capital flows to India picked up amid a wave of global policy easing. The bull run is slowing as an improving U.S. economy scotches Brexit-fueled optimism that higher borrowing costs were a remote prospect. While Yellen stopped short of revealing the specific timing of a rate move, Vice Chairman Stanley Fischer said a rate increase in September is possible.

The 30-day volatility for the Nifty gauge fell to 9.61, the lowest level since December 2014, as the measure remains locked in a tight trading range. The India VIX Index, which tracks the expected swings in the Nifty gauge over the next 30 days, fell to its lowest level since March 2015. The equity gauge has swung more than 1 percent only twice this month.

Sleepy August

It’s been a subdued August for markets. The S&P 500 Index is locked in its tightest trading range since the end of 1965 amid confusion about Fed policy and the outlook for earnings. The Shanghai Composite Index ended little changed on Monday, with a 10-day volatility gauge falling to a two-year low. Swings in the MSCI Asia Pacific Index over the past two weeks have been the most muted since 2012, data compiled by Bloomberg show.

“Sentiments linked to the eventual Fed rate hike seem to be waxing and waning a number of times, and it would be healthy for markets to have an increase and be done with it,” Sanjay Sinha, founder of Mumbai-based Citrus Advisors, said by phone. “A certain amount of complacency also seems to be setting in due to the muted impact of Brexit.”

Global funds pulled money from Indian stocks in three of the past four session as investors pared risk before Yellen’s speech on Friday, halting 29 days of inflows that was the longest stretch since November 2013. They sold a net $46 million of equities on Aug. 25, paring this year’s inflows to $5.8 billion. The purchases are still the highest in Asia after Taiwan and South Korea, data compiled by Bloomberg show.

Odds of a Federal Reserve rate next month have jumped to 42 percent from 22 percent a week ago as the U.S. economy improves. The nation’s unemployment rate dropped below 5 percent this year for the first time since 2008 and payrolls data on Friday are forecast to show 180,000 jobs were added in August. A report on Monday is expected to show American consumers boosted spending for a fourth month in July.

State Bank of India ended five days of declines. Drugmaker Lupin Ltd. and Wipro Ltd., the third-biggest software exporter, were among the biggest decliners on the Sensex.

JK Tyre climbed 6.3 percent, taking this month’s gain to 45 percent. Rival Ceat Ltd. rose 3.7 percent to the highest price since Aug. 9, while Apollo Tyres Ltd. rallied 4.2 percent to the highest level since October 2015.

Benchmark rubber prices at Kottayam, India’s largest physical market, reached 130 rupees per kilogram on Aug. 27 from 144 rupees in the beginning of the month, data from India’s Rubber Board show.

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