Indian stocks had the year’s best weekly rally amid expectation the nation’s central bank will join regional peers in slashing borrowing costs to boost growth.
Larsen & Toubro Ltd. (LT), the largest engineering company, climbed to a seven-week high. Reliance Industries Ltd. (RIL), owner of the world’s largest refining complex, advanced for a fifth day. Sterlite Industries (India) Ltd. (STLT) soared 3.5 percent. The BSE India Sensitive Index (SENSEX) increased 0.4 percent to 16,718.87 at close. The gauge rallied 4.7 percent this week, the most since the 7.3 percent gain in the five-day period ended Dec. 2.
The People’s Bank of China yesterday cut its interest rate for the first time since 2008, fanning optimism policy makers around the world will do more to support growth. The move came a day after Prime Minister Manmohan Singh outlined projects to revive growth that slowed to a near-decade low in the last quarter. The Reserve Bank of India reviews policy on June 18.
“It is important to revive growth and get some confidence back in the economy,” Sandip Sabharwal, chief executive officer of portfolio management services at Prabhudas Lilladher in Mumbai, said by telephone. “The RBI must step in and push growth.” A rate cut will “start a virtuous cycle,” he said.
Growth concerns have dragged down the Sensex 9.3 percent from its 2012 high on Feb. 21. The gauge declined 6.4 percent last month, its worst May performance since 2006, and is valued at 13 times estimated earnings, its lowest in about three years.
India’s gross domestic product expanded 5.3 percent last quarter, stoking concern the economic outlook has deteriorated as policy gridlock deters investment and Europe’s debt crisis crimps exports. The slowdown and an oil-price drop suggest more room for rate cuts even as inflation risks remain, RBI Deputy Governor Subir Gokarn said June 1 and reiterated on June 4.
The RBI cut rates on April 17 for the first time in three years, after raising it a record 13 times from mid-March 2010 to October last year to cool accelerating prices. Inflation averaged 7.1 percent in the first four months of this year, compared with 9.5 percent in the whole of 2011.
The Sensex rebounded from an intraday drop of 1 percent as the expectation of a rate cut forced traders to close bearish bets in companies most tied to the economy, Shankar Char, vice president at ICICI Securities Ltd., a unit of India’s biggest private lender, said by e-mail.
“Interest-rate sensitives were in the limelight and some like Larsen & Toubro benefited from short covering,” he said.
Larsen & Toubro surged 2.7 percent to 1,309.45 rupees, extending this week’s rally to 15 percent, the most among the 30 companies on the Sensex. Bharat Heavy Electricals Ltd. (BHEL), the top power-equipment maker, climbed 1.4 percent to 221.2 rupees. Reliance advanced 1.2 percent to 729.7 rupees.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, fell 0.7 percent to 23.47. The Nifty increased 0.4 percent to 5,068.35, closing above its 200-day moving average of 5,006.
Sterlite jumped surged 3.5 percent to 100.6 rupees. The stock has soared 10.4 percent this week, its steepest climb since the five days ended Oct. 28.
Overseas investors purchased a net $134 million of stocks yesterday, extending and total investment this year to $8.4 billion, data from the regulator show. Foreigners cut holdings by $273 million in May, a second month of net sales.
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