Indian Equities Gain as Inflation Data Spurs Rate-Cut Optimism

  • Mid and small-cap stocks outpace gains in benchmark indexes
  • Inflation rate climbs 5.05% in August versus 5.2% estimate

Indian stocks climbed for the first time in three days, led by gains in mid- and small-sized companies, after a more-than-estimated easing in the nation’s main inflation rate revived calls for an interest-rate cut.

The BSE 100 Index rose 0.4 percent, while the S&P BSE Sensex added less than 0.1 percent after changing direction at least 12 times. The gauges fell the most in almost three months Monday as global equities slumped amid concern that central banks are preparing to wean markets off unprecedented stimulus.

India’s consumer prices increased 5.05 percent in August from a year earlier, official data showed after trading ended on Monday. That’s slower than the 5.2 percent median estimate in a Bloomberg survey and less than the previous month’s 6.07 percent rate. The markets were closed Tuesday for a public holiday.

S&P BSE 100+0.4%8,976
S&P BSE MidCap+1.3%13,125.13
S&P BSE SmallCap+1.2%12,711.56

“The drop in consumer-price inflation increases the probability of a rate cut, and if the Fed doesn’t raise rates at its next meeting, stocks will rebound sharply,” Arjun Prajapati, vice president at Asit C. Mehta Investment Interrmediates Ltd. in Mumbai, said by phone.

A softening in some of Asia’s strongest inflation would allow newly appointed Reserve Bank of India Governor Urjit Patel room to retain his predecessor Raghuram Rajan’s “accommodative" monetary stance to stimulate investment. At his last review Aug. 9, Rajan left the key repurchase rate unchanged at a five-year low of 6.5 percent and flagged upward risks to the central bank’s CPI target of 5 percent by March 2017. The next policy meeting is on Oct. 4.

The Sensex has retreated 2.3 percent after reaching an 18-month high on Thursday amid a rout in financial markets that’s wiped some $2 trillion off the value of global equities over the past week. Volatility soared after a report showed fund managers are hoarding more money in cash amid uncertainty over the trajectory of central bank stimulus globally.

While overseas investors have pulled $140 million from local shares in the past two trading sessions, paring this year’s inflow to $6.3 billion, domestic investors are using the declines to buy stocks, according to Sundaram Asset Management Co.

“Inflows into mutual funds is very strong,” Sunil Subramaniam, chief executive officer at Sundaram Asset, which oversees $3.6 billion, said in an interview in Mumbai. “Every fall is being bought into aggressively.”

Investors pumped 65 billion rupees into equity funds in August, according to data from the Association of Mutual Funds in India. That’s more than double the 25 billion rupees stock funds attracted in July, the data show.

  • State Bank of India and Axis Bank Ltd. were among the top gainers on the Sensex, while Adani Ports & Special Economic Zone Ltd. climbed for the first time in three days.
  • Hindalco Industries Ltd. rebounded from its biggest two-day loss in eight years after billionaire Chairman Kumar Mangalam Birla said demand in India expected to be strong on improved outlook for industrial and infrastructure growth.
  • Coal India Ltd., the world’s biggest producer of the fuel, retreated the most in a month after its first-quarter profit declined 15 percent from a year earlier.
  • Hindustan Construction Co. surged 8 percent to a two-year high after the company said it got an 1.81-billion rupee order from the department of atomic energy. The stock has surged 50 percent so far this month.

The Sensex is valued at 16.2 times projected 12-month profits compared with 12.3 times for the MSCI Emerging Markets Index.

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