Bloomberg News

India’s Sensex Gains as Farm Output Hopes Ease Inflation Concern

June 14, 2011

June 14 (Bloomberg) -- Indian stocks rose, lifting the benchmark index higher for the first time in five days, as speculation monsoon rains will boost agricultural output, potentially slowing inflation.

Mahindra & Mahindra Ltd., India’s largest maker of tractors, gained 1.1 percent as the nation’s agriculture secretary said wheat production may advance to a record for a fourth year. ITC Ltd., a consumer goods company, climbed the most in two weeks. Larsen & Toubro Ltd., the nation’s largest engineering company, advanced 1.1 percent.

The Bombay Stock Exchange Sensitive Index, or Sensex, gained 42.63, or 0.2 percent, to 18,308.66 at the 3:30 p.m. close in Mumbai, with two stocks rising for each one that fell. The MSCI Asia Pacific Index climbed 1.1 percent, gaining for the first time in five days, after a Chinese industrial production report exceeded economists’ forecasts.

“It looks like a monsoon rally,” said Arun Kejriwal, a director at Kejriwal Research & Investment Services Pvt. in Mumbai. “Support from other Asian markets has helped. But investors are still skeptical as inflation, interest rates and economic slowdown concerns are still there.”

The Sensex has lost 11 percent this year, the most among benchmark Asian gauges tracked by Bloomberg, amid concern higher borrowing costs will crimp earnings. The Reserve Bank of India may boost borrowing costs on June 16 for the 10th time since mid-March 2010 to curb inflation, 15 of 17 economists in a Bloomberg survey said.

Monsoon Rains

The Sensex pared an increase of 0.6 percent today after the government reported that its wholesale-price index rose 9.06 percent from a year earlier after an 8.66 percent jump in April. The median estimate of 22 economists in a Bloomberg News survey was for an 8.74 percent increase. Stocks also trimmed gains as China raised the amount banks have to hold in reserve.

The S&P CNX Nifty Index on the National Stock Exchange rose 0.3 percent to 5,500.50, after climbing 0.7 percent. The BSE 200 Index gained 0.3 percent to 2,281.30 rupees.

Mahindra gained 1.1 percent to 671.65 rupees amid speculation higher agricultural output will boost demand for its tractors.

Investors have been monitoring monsoon rainfalls this month to gauge the strength of agricultural production, which accounts for a fifth of India’s economy. Monsoon rains have been 6 percent above average since June 1, the nation’s weather bureau reported yesterday.

Farm Output

Production of corn, a crop sown during India’s monsoon season, may climb 7 percent from a record in the year ending June, said Gagan Gulati, the head of the grains business at Olam International Ltd.’s Indian unit. Wheat output may climb 6.4 percent to 86 million metric tons in the year ending June 30, India’s Agriculture Secretary P.K. Basu said in an interview yesterday in New Delhi.

“With good rainfall, inflation will come down and that will have a positive impact on stocks,” Anita Gandhi, director at Arihant Capital Markets Ltd., said yesterday.

“The growth and inflation trade-off is getting increasingly challenging,” Sudhakar Shanbhag, who manages about $1.8 billion in assets as Mumbai-based chief investment officer at Kotak Mahindra Old Mutual Life Insurance Ltd., said in an e- mail. “The stance from the Reserve Bank of India, based on their expectation on growth and inflation, may still lean towards controlling inflation.”

The Indian economy may be “overheating” and further rate rises are warranted, Nouriel Roubini, co-founder and chairman of Roubini Global Economics LLC, said yesterday.

ITC rose 1.6 percent to 193.85 rupees and its June futures traded at 194.80 rupees. The stock is the best performer among the 30 Sensex shares, with an 11 percent advance this year.

‘We’re Bullish’

Larsen climbed 1.1 percent to 1,727.45 rupees. ICICI Bank Ltd., the second-biggest lender, added 1.5 percent to 1,055.55 rupees and its June futures traded at 1,061.20 rupees.

Declines in the Sensex have dragged the average valuation of its companies to 14.8 times estimated profit, down from 21.5 times in March 2010, last year’s high. The MSCI Emerging Markets Index trades at 10.9 times earnings.

“We’re bullish and see value at current levels with a nine to 12-month perspective,” Manoj Singla, managing director and co-head of research at Religare Capital Markets Ltd., said in Mumbai. He recommends DLF Ltd., India’s biggest developer, as the stock that may rebound.

DLF gained 1.3 percent to 232.05 rupees. The shares closed yesterday at the lowest level since May 27.

Overseas investors sold a net 4.7 billion rupees ($105 million) of Indian stocks on June 10, paring their investment in the equities this year to 2.02 billion rupees, according to data on the website of the market regulator.

--With assistance from Santanu Chakraborty in Mumbai. Editors: Darren Boey, Matthew Oakley.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net.

To contact the editors responsible for this story: Darren Boey at dboey@bloomberg.net


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