India’s benchmark stock index rose to a five-week high as metalmakers and auto companies increased amid speculation the central bank may lower interest rates as a drop in oil prices cools inflation.
Hindalco Industries Ltd. (HNDL), the second-biggest aluminum maker, was the best performer on the S&P BSE Sensex (SENSEX), while Tata Steel Ltd. rallied the most in about five months. Tata Motors Ltd. (TTMT) rose to a five-week high and Mahindra & Mahindra Ltd. (MM), the nation’s largest tractor maker, climbed the most in a week.
The Sensex added 0.8 percent to 27,098.17, the highest close since Sept. 22. A 23 percent slide in Brent crude since June has helped cut the pace of consumer-price inflation to a three-year low, increasing room to ease monetary policy. Ashima Goyal, an adviser to the Reserve Bank of India, said last week the central bank may consider cutting rates as early as March should lower energy costs help reduce price pressures further in a nation that imports almost 80 percent of its oil.
“Cyclicals and interest-rate sensitives have moved up in anticipation of a rate cut,” Lancelot D Cunha, chief executive officer at ITI Wealth Management Pvt., said in an interview with Bloomberg TV India today. “Inflation and fiscal deficit looks under control, given oil prices are remaining soft. A rate cut is becoming a certainty, it’s only a question of timing.”
Standard & Poor’s raised India’s credit rating outlook in September, citing reduced inflation and a government plan to cut the budget deficit to a seven-year low. Finance Minister Arun Jaitley said in an interview with the Times of India newspaper last week that it’s time to start lowering interest rates as inflation is stabilizing. The RBI has held the main rate at 8 percent since an increase in January.
The yield on the 8.4 percent sovereign notes due July 2024 was little changed today at 8.32 percent, the lowest level for benchmark 10-year debt since September 2013.
The Sensex, poised for a 1.8 percent gain in October, has risen in all but two months in 2014 on optimism Prime Minister Narendra Modi will accelerate policy changes aimed at spurring growth. Modi ended price curbs on diesel and raised natural-gas tariffs earlier this month. His Bharatiya Janata Party won the most seats in two state elections, victories that could make it easier to push ahead with tougher steps to boost growth. Those include further opening up to foreign investment and a goods-and-services tax.
Hindalco, Sesa Sterlite
Hindalco surged 6.2 percent, the most since July 1. Tata Steel jumped 4.5 percent, the best performance since June. The S&P BSE Metals Index had the sharpest advance in two months.
Sesa Sterlite Ltd., India’s biggest copper producer, increased for a third day after reporting profit that beat estimates. Net income rose to 16.6 billion rupees ($ 271 million) in the three months ended Sept. 30, compared with the 15.8 billion rupees estimated by 15 analysts in a Bloomberg survey.
Dr. Reddy’s Laboratories Ltd. (DRRD) slid the most in two weeks after the drugmaker’s second-quarter net income of 5.74 billion rupees matched estimates in a survey.
Seven of the 12 Sensex companies that have posted results so far have beaten or matched estimates. Earnings of companies on the gauge are likely to expand 23 percent over the next 12 months, versus 15 percent for companies on the MSCI Emerging Markets Index, data compiled by Bloomberg show.
“An economic cyclical recovery is underway and we are very comfortable with the earnings estimate the street has for the next couple of years of double-digit growth,” Gautam Chhaochharia, the head of research at UBS Securities India Pvt., said in a Bloomberg TV India interview today. “The earnings momentum is definitely going to play out.”
Tata Motors climbed 3.5 percent, taking this year’s rally to 40 percent. Mahindra & Mahindra gained 1.7 percent, trimming this month’s loss to 4.6 percent.
Foreigners sold a net $ 11.6 million of Indian stocks on Oct. 28, paring this year’s inflows to $ 13.3 billion, still the highest among eight Asian markets tracked by Bloomberg.
The Sensex has increased 28 percent this year, the best performer among the world’s 10 biggest markets, and is valued at 15.5 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s multiple of 10.9.
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