India’s benchmark stock index rose for the ninth day, the longest stretch of gains in five years, after the government allowed more foreign investment into the economy and as the central bank unexpectedly reduced the amount of deposits lenders must set aside as reserves.
The BSE India Sensitive Index, or Sensex, rose 0.4 percent to 18,542.31 at the close. The nine-day advance is the longest since the 11 days through Oct. 3, 2007. State Bank of India advanced 5.5 percent. Reliance Industries Ltd. (RIL), owner of the world’s largest refining complex, climbed to a 10-month high.
India ended a 14-month freeze in diesel prices last week to cut its fiscal deficit and allowed more foreign investment in aviation and retail sectors, the biggest policy overhaul of Prime Minister Manmohan Singh’s previously gridlocked second term. The Reserve Bank of India reduced the cash reserve ratio today even as it kept interest rates unchanged.
“I’ve become a bull from a bear over the weekend,” Neelakantan Sethuram Iyer, chief investment officer at Daiwa Asset Management India Pvt., said in a phone interview from Mumbai. The policy action is “probably the best the RBI could have done under the circumstances.”
Governor Duvvuri Subbarao lowered the cash reserve ratio to 4.5 percent from 4.75 percent, effective Sept. 22, adding about 170 billion rupees ($3 billion) to the banking system. Three of 39 economists in a Bloomberg survey predicted the outcome, with the rest forecasting no change.
“The government’s recent actions have paved the way for a more favorable growth-inflation dynamic,” the RBI said today. “Several challenges remain, one of which is persistent inflation.”
Inflation has quickened beyond 7.5 percent, a climb that may be worsened by higher fuel costs and a rise in commodities as the U.S. steps up monetary easing.
The Sensex has climbed 20 percent this year, helped by the highest inflows among the 10 Asian markets outside China. The measure is the world’s second-best performer among indexes with at least a $1 trillion value. Offshore funds bought a net $522 million of shares on Sept. 14, the most since July 2, taking investments this year to $13.4 billion, according to data from the nation’s market regulator.
Citigroup Inc. increased its June 2013 estimate for the Sensex by 8 percent to 19,900, and Deutsche Bank AG raised its year-end target by 11 percent to 20,000, the brokerages said in notes to clients today.
State Bank climbed 5.5 percent to 2,079.55 rupees, its highest since July 24. ICICI Bank Ltd. surged 5.2 percent to 1,060.65 rupees. Axis Bank Ltd. (AXSB) gained 4.7 percent to 1,057.5 rupees. Reliance Industries increased 3.8 percent to 873.75 rupees, its highest close since Nov. 14.
Larsen & Toubro Ltd. (LT), the largest engineering company, added 4.4 percent to 1,555.45 rupees. Bharat Heavy Electricals Ltd. (BHEL) rose 4.3 percent to 213.55 rupees.
“Investors looking to play the beta rally should increase exposure in banks, metals, real estate and select infrastructure names and trim positions in software services and pharmaceuticals on recent strong performance and expected rupee appreciation,” Deutsche Bank AG analysts Abhay Laijawala and Abhishek Saraf wrote in a report today.
The Sensex trades at 14.7 times estimated earnings. While that’s 30 percent more than the MSCI Emerging Markets Index’s valuation of 11.3 times, it’s below the 16.2 multiple the Sensex traded at in February, data compiled by Bloomberg show.
The S&P CNX Nifty Index added 0.6 percent to 5,610 and its September futures settled at 5,616.70. The India VIX, which gauges the cost of protection against declines in the Nifty, jumped 16 percent to 17.78. The BSE-200 Index (BSE200) rose 0.8 percent.
The National Stock Exchange of India Ltd. and the BSE Ltd. traded 1.1 billion shares on Sept. 14, 21 percent more than the 12-month daily average of 880 million.
Pantaloon Retail India Ltd. (PF), the nation’s top supermarket operator, surged 19 percent, the most since May 2009, to 187.7 rupees. Shoppers Stop Ltd. (SHOP) jumped 7.8 percent to 383.75 rupees. Budget carrier SpiceJet Ltd. soared 12 percent to 38.6 rupees.
Tata Consultancy Services Ltd. (TCS), the top software exporter, tumbled 5 percent to 1,342.1 rupees on concern the rupee’s gain to a four-month high will cut the value of their earnings. A stronger local currency hurts exporters because it reduces the value of repatriated earnings. Infosys Ltd. (INFO) fell 2.6 percent to 2,564.50 rupees, the most since July 16, and Wipro Ltd. (WPRO) dropped 1.7 percent to 384.80 rupees.
The rupee strengthened 0.6 percent to 54.0075 per dollar at the close, following a 2 percent advance on Sept. 14.
ITC Ltd. (ITC), the nation’s biggest cigarette company, plunged 5.5 percent to 253.5 rupees. Hindustan Unilever Ltd., the largest household products maker, dropped 3 percent to 531.85 rupees. Drugmaker Dr Reddy’s Laboratories Ltd. (DRRD) fell 4.4 percent to 1,670.5 rupees.
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