Bloomberg News

Indian Stock Futures Gain on Fed Stimulus Optimism, Crude

May 17, 2012

Indian stocks rebounded from their lowest level in four months amid optimism the U.S. Federal Reserve will do more to stimulate the world’s biggest economy, and as tumbling oil prices offset a weakening Indian currency.

ITC Ltd. (ITC), the nation’s biggest cigarette company, jumped 3.3 percent. Reliance Industries Ltd. (RIL), owner of the world’s largest refining complex, rose the most in five weeks. The two companies make up 19 percent of the benchmark index. State Bank of India (SBIN), the biggest lender, gained the most in than a week.

The BSE India Sensitive Index (SENSEX), or Sensex, rose 0.3 percent to 16,070.48 at close. The 30-stock measure is valued at 12.5 times estimated earnings, the lowest level in more than three years, data compiled by Bloomberg show. That compares with a multiple of 9.9 times for the MSCI Emerging Markets Index. The Sensex has lost 13 percent from its Feb. 21 high, exceeding the 10 percent slump that signifies a correction to some investors.

“Given the valuations it seems to be a market in which you are better off being invested rather than being out of,” Prasun Gajri, who oversees $5.3 billion as chief investment officer at HDFC Standard Life Insurance Co. (HDUGTHL), told Bloomberg UTV today. “We don’t know where the bottom is but valuations are looking compelling. It’s a good time to buy.”

Minutes from the Fed’s last meeting showed several policy makers said a deteriorating economic outlook could warrant more monetary stimulus to keep the recovery on track. Brent crude, the benchmark for India, slumped as low as $109 a barrel today, set for the lowest close this year and making imports cheaper for a country that buys about 80 percent of its oil from abroad.

Dollar Demand

The Reserve Bank of India is considering selling dollars directly to oil importers to ease demand for the greenback in the market, a central bank official said, asking not to be identified, citing policy.

Concern India’s outlook has worsened because of trade and fiscal deficits, policy gridlock, elevated consumer prices and faltering global growth has pressured the rupee. The currency fell to a record low of 54.585 today. It has dropped 17 percent in the past year and is the worst performer in Asia.

“Inflation lower than the real GDP growth rate, growing foreign-exchange reserves, rising rupee and lower borrowing costs” are the ingredients for a bull market, Anoop Bhaskar, head of equities at UTI Asset Management Co., said yesterday in an interview in Mumbai. “While the rates are set to decline, we don’t have the other three right now and therefore it will be a struggle for markets to meet new highs.”

The RBI last month cut interest rates for the first time in three years and signaled inflation might limit the room for further cuts. Consumer prices unexpectedly quickened in April and factory output contracted in March as weaker demand and tumbling exports hurt the economy.

VIX Index

India VIX, which measures the cost of protection against losses in the S&P CNX Nifty (NIFTY) Index, fell 0.5 percent to 23.59. The Nifty Index added 0.3 percent to 4,870.20. The gauge pared an intraday gain of 1.3 percent and changed directions at least 10 times today.

The Nifty will trade between 4,800 and 5,500 in the next 18 months, UTI’s Bhaskar said. UTI is India’s fifth-biggest money manager with $10.8 billion in assets.

The BSE-200 Index (BSE200) added 0.1 percent to 1,983.95. A total of 839 million shares traded on the BSE and NSE yesterday, 7 percent less than the 12-month daily average.

ITC, which has the biggest weighting on the Sensex, jumped 3.3 percent to 234.75 rupees, extending this year’s rally to 17 percent. Reliance rose 1.3 percent to 685.15 rupees, rebounding from a three-year low touched yesterday. DLF Ltd. (DLFU), the biggest developer, increased 1.7 percent to 184.8 rupees.

State Bank advanced 1.1 percent to 1,848.35 rupees. HDFC Bank Ltd., (HDFCB) the third-biggest lender, increased 0.5 percent to 497.8 rupees, ending a four-day decline. Housing Development Finance Corp. (HDFC), the biggest mortgage lender, gained 2.1 percent to 633.85.

Overseas investors sold a net 4.82 billion rupees ($88.7 million) of Indian stocks yesterday, paring their investment in equities this year to 432.2 billion rupees, according to the nation’s market regulator.

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

To contact the editor responsible for this story: Allen Wan at awan3@bloomberg.net


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