India Stocks Climb for Third Day as Central Bank Reduces Rates

  • Sixteen of 39 analysts surveyed predicted rate reduction
  • RBI has room to cut interest rates further: Trivantage Capital

India Lowers Rates in Patel's First Policy Decision

Indian stocks rose for a third day after the new Reserve Bank of India Governor Urjit Patel cut borrowing costs at his first policy review, taking advantage of easing consumer prices to bolster expansion in Asia’s third-largest economy.

The benchmark rate was lowered to 6.25 percent from 6.50 percent, the central bank said in a statement in Mumbai. That’s the lowest since January 2011. The move was predicted by 16 of 39 economists in a Bloomberg survey, with one seeing a reduction to 6 percent and the rest forecasting no change.

IndexChangeSize and Scope
BSE Sensex+0.3%Highest level in 10 days
Nifty 50+0.4%Third day of advance
S&P BSE MidCap+0.5%Record
S&P BSE Energy+1.1%Highest since June 2014

“While the market had factored in a 25-basis point cut, the decision is a relief and it will keep investor sentiment strong,” said Nikhil Johri, chief investment officer at Trivantage Capital Management India in Mumbai. “There’s scope for one or more rate cuts in the next six months.”

The nation’s consumer price index climbed 5.05 percent in August from a year earlier, the smallest increase since March. HSBC Holdings Plc economist Pranjul Bhandari expects price gains to ease to as low as 4.5 percent in January-March and stay below 5 percent for the next 12 months, as normal rain after two straight years of drought helps lower food costs.

‘Better Visibility’

While India is still the world’s fastest-growing big economy, expansion slowed in the three months through June, complicating the outlook for Prime Minister Narendra Modi, who faces as many as seven state elections in 2017. The nation is also in the midst of geopolitical tensions after saying last week it struck terrorist camps over the border in Pakistan.

“It’s good news that the RBI panel was happy to cut rather than wait and see, which most people thought they would do," Sanjiv Shah, chief investment officer at wealth manager and adviser Sun Global Investments Ltd., said by phone from London. “There’s better visibility on inflation and the panel seem to be relaxed about it.”

The Sensex on Friday capped a second straight quarter of gains and the rupee completed a third monthly advance. The advances have come as the nation’s world-beating growth lured global investors, while optimism that easing consumer prices will allow the RBI to reduce borrowing costs from a five-year low bolstered sentiment.

Fund Flows

Overseas funds have plowed $7.5 billion into local stocks this year, more than double the $3.3 billion they invested in all of 2015. Local mutual funds have purchased $2.1 billion of shares since Jan. 1, extending last year’s record inflow of $10.2 billion, data compiled by Bloomberg show.

The Sensex is valued at 15.9 times projected 12-month earnings, while the MSCI Emerging Markets Index is valued at a multiple of 12.5.

  • Oil & Natural Gas Corp. and GAIL India Ltd. were the best performers on the Sensex. ONGC rallied 5.1 percent, the most since August 2015, while GAIL climbed 4.3 percent, the most since May 6.

  • State Bank of India and Punjab National Bank were the top gainers on the S&P BSE India Bank Index. 

  • HPL Electric & Power Ltd. tumbled 6.3 percent in trading debut. 

  • Tata Steel Ltd. climbed 2.2 percent and Tata Motors Ltd. gained 1.7 percent.

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