Bloomberg News

India Stocks Rise Most Since August as Europe Counters Inflation

October 28, 2011

Oct. 28 (Bloomberg) -- India’s benchmark stock index had its biggest gain in two months as Europe’s leaders agreed to expand a bailout fund to stem the region’s debt crisis and the U.S. economy grew, countering concern inflation in the South Asian nation is accelerating.

Hindalco Industries Ltd., the aluminum maker that controls Atlanta-based Novelis Inc., surged the most in more than two years, leading a rally among peers. Tata Motors Ltd., the owner of Jaguar Land Rover, climbed to its highest level since July.

The BSE India Sensitive Index, or Sensex, added 515.97, or 3 percent, to 17,804.80 in Mumbai, its highest level since Aug. 3. The index had its biggest advance since Aug. 29, taking its weekly gain to 6.1 percent, the most since the period ended Sept. 2. Markets were closed yesterday for a holiday and opened for shortened trading on Oct. 26.

“Risk money is coming back to the markets and we look forward to a good year-end rally,” said Vaibhav Sanghvi, director at Ambit Holdings Pvt. “The European deal is a welcome development for markets; it will stabilize the region and people will start putting risk back into their investments.”

European leaders agreed yesterday to expand a bailout fund to halt the sovereign-debt crisis. The U.S. economy grew at a 2.5 percent annual pace in the third quarter, data showed yesterday, the fastest rate in a year as Americans reduced savings to boost purchases and companies stepped up investment in equipment and software. India’s food inflation quickened at the fastest in more than six months in the week ended Oct. 15, the commerce ministry said yesterday.

The S&P CNX Nifty Index on the National Stock Exchange of India gained 3.1 percent to 5,360.70. Its November futures settled at 5,384.50. The BSE 200 Index climbed 2.7 percent.

Welcome Signal

The MSCI Asia Pacific Index gained 4.4 percent since Indian stock markets last traded a full day on Oct. 25. The Sensex rose 1.9 percent that day, after the Reserve Bank of India raised interest rates for the 13th time since the start of 2010 and signaled an end to monetary tightening as growth slows.

“On the domestic side, the interest rates were a big reason why markets were not enthused, hence the central bank’s signal to halt rate increases is welcome,” Sanghvi said.

Central bank Governor Duvvuri Subbarao has raised the benchmark rate 375 basis points since mid-March 2010, the fastest round of increases since the central bank was established in 1935, Bloomberg data show.

‘Reasonably Confident’

India’s food inflation gained 11.43 percent from a year earlier in the week ended Oct. 15, compared with 10.6 percent the previous week. The nation’s benchmark wholesale-price inflation was 9.72 percent in September, having stayed above 9 percent throughout this year.

Subbarao is “reasonably confident” of meeting his goal of reducing inflation to 7 percent by the end of March, a level that still won’t be sufficient to justify interest-rate cuts, he said in an interview with Bloomberg UTV on Oct. 26.

“The concern about Indian macros is getting discounted,” said Alex Mathews, Kochi, southern India-based head of research at Geojit BNP Paribas Financial Services Ltd. “Inflation is likely to come down from January onwards due to base effect and the RBI’s signal to end rate increases is a positive too.”

The Sensex has declined 13 percent this year amid concern record rate increases may compound the effects of Europe’s debt crisis and slowing U.S. economic growth on corporate profits.

Earnings

Earnings announced by four out of 12 Sensex companies for the September quarter have lagged behind estimates, compared with 47 percent in the quarter ended June, according to data compiled by Bloomberg. Companies in the gauge are valued at 15.2 times estimated profits, down from 21.5 times in March 2010. The MSCI Emerging Markets Index trades at 10.6 times.

Hindalco jumped 11 percent to 142.3 rupees, its steepest rally since May 2009. Sterlite Industries (India) Ltd., the nation’s biggest copper and zinc producer, surged 8.7 percent to 132.8 rupees. Tata Steel Ltd., the largest producer of the alloy, rose 7.2 percent to 483.7 rupees.

Tata Motors rallied 7.8 percent to 206.8 rupees, its highest level since July 14. Reliance Industries Ltd., India’s most valuable company by market value, increased 3 percent to 900 rupees, paring this year’s loss to 15 percent.

Overseas investors bought a net 1.47 billion rupees ($30 million) of Indian stocks on Oct. 24, paring their outflow from equities this year to 14.3 billion rupees, data on the website of the regulator show.

--Editors: Darren Boey, Sam Nagarajan

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

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


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