Stocks Rise as Foreigners Keep Faith in India Despite Fed Odds

Updated on
  • Funds snap up equities at fastest pace since November 2014
  • Construction companies surges as government eases policy

Automakers and consumer companies helped Indian stocks to a third day of gains as global funds remained buyers despite the prospect of U.S. borrowing costs rising. The benchmark gauge completed the longest stretch of monthly advances in two years.

Foreigners bought a total $128 million of shares on Friday and Monday after turning sellers for three days last week before Federal Reserve Chair Janet Yellen said the case for higher interest rates is getting stronger. They’ve plowed $5.9 billion into local stocks since Jan. 1, surpassing last year’s $3.3 billion. That’s helped the S&P BSE Sensex rise 24 percent from a low in February.

“This is purely a liquidity-driven rally,” Ashish Kukreja, chief executive officer at Mumbai-based Craft Financial Advisors Pvt., said by phone. “Investors are betting on known performers such as automakers and consumer companies, where there’s certainty of earnings and sales growth.” Kukreja said he’s telling clients to be cautious because of high valuations.

Index Change LevelHighest Since
Sensex +0.4%28,452.17July 22, 2015
Nifty +0.5%8,786.20April 13, 2015
S&P BSE MidCap+0.4% 13,217.31Record level
S&P BSE SmallCap+0.2%12,648.79Record level

Indexes tracking automakers and producers of consumer goods climbed to all-time highs amid optimism sales will rise as the government pays out past dues to its employees this week. As many as 10 million staff and pensioners will received an additional 390 billion rupees ($5.8 billion) in their August paychecks, according to a Deutsche Bank AG report. Producers of appliances, two-wheeler makers and lenders would benefit the most from the extra money in the hands of consumers, the bank said.

  • Auto stocks were among the best performers on the Sensex. Tata Motors Ltd., owner of Jaguar Land Rover, rallied to a 16-month high. Two-wheeler maker Hero MotoCorp Ltd. advanced to an all-time high. 

  • Hindustan Construction Co. soared by the 20 percent limit, the steepest climb in three years, after the government approved measures for the construction sector aimed at resolving disputes that have stalled projects. ARSS Infrastructure Projects Ltd. jumped 13 percent; Gammon India Ltd. rallied 17 percent; Punj Lloyd Ltd. surged 12 percent; GVK Power & Infrastructure Ltd. climbed 6.5 percent; Jaiprakash Associates Ltd. added 3.6 percent.

  • Asian Paints Ltd. increased to a record. Marico Ltd., a maker of hair oils, added 1.5 percent, the most since Aug. 11.

  • RBL Bank Ltd. surged 33 percent in its trading debut. The lender sold shares at 225 rupees apiece in an initial share sale.

The rebound has driven the Sensex’s valuation to 16.4 times projected 12-month earnings, near the highest level since April 2015. The MSCI Emerging Markets Index is valued at a multiple of 12.5, data compiled by Bloomberg show.