Indian (SENSEX) stocks advanced, with the benchmark index completing its first weekly gain in three, led by shares of energy companies and metal producers.
The BSE India Sensitive Index, or Sensex, climbed 0.6 percent to 19,444.84 at the close in Mumbai, extending this week’s gains to 1.1 percent. Volumes on the index were 23 percent lower than the 30-day average.
Reliance Industries Ltd. (RIL) and Oil & Natural Gas Corp. (ONGC) paced gains after NDTV Profit reported the petroleum secretary as saying yesterday the government will gradually increase diesel prices next year to cut subsidies. Sterlite Industries (India) Ltd. (STLT), the biggest copper producer, surged 2.4 percent.
The Sensex has risen 26 percent this year, headed for its biggest annual jump since 2009, as the government responded to the threat of a credit-rating downgrade with its biggest push in a decade to open up the economy to foreign investment. Asian stocks advanced and U.S. index futures fluctuated between gains and losses as U.S. lawmakers arranged talks before a budget deadline, with Democratic and Republican leaders of the House and Senate planning to meet with President Barack Obama.
“Global markets are realigning to the fact that we may not have a deal in the next few days and it could possibly spin over to a good part of January,” Amit Khurana, director of research at Dolat Capital Market Ltd., said in an interview today. “I don’t think it will lead to a significant correction in India. Factors here are turning for the better and not the worse.”
The MSCI Asia Pacific Index climbed 0.5 percent today. The measure has advanced 14 percent this year, poised for the biggest annual rise since 2009, as the U.S. and Chinese economies showed signs of recovery and central banks around the world took action to shore up growth.
India’s efforts to rival China as the fastest-growing major emerging nation have been hurt by budget and trade deficits and supply bottlenecks that have kept inflation above 7 percent. Prime Minister Manmohan Singh overhauled policies in mid- September, raising diesel prices and opening the economy to more foreign investment as he struggles to lift growth from last quarter’s 5.3 percent pace.
The policies are driving the nation’s largest money managers to accumulate automakers, property companies and metal producers that stand to benefit most from a recovery.
Sunil Singhania, head of equities at Reliance Capital Asset Management Ltd., is buying property and engineering stocks, while Sampath Reddy, Bajaj Allianz Life Insurance Co.’s chief investment officer, is selling drugmakers and telecommunications shares in favor of mining companies.
“The last two years we were all hiding behind so-called safe stocks,” said Singhania, who helps oversee about $16 billion at Reliance and manages the nation’s best-performing fund in the past decade. “The government means to take this reform process ahead and that is very clearly reflected in the optimism in the market. We think that is going to continue.”
The policy actions were a “trigger” for Mahesh Patil, co- chief investment officer at Birla Sun Life Asset Management Co., to switch from so-called defensives to cyclical stocks that would gain from a cut in interest rates. Birla is India’s fourth-biggest fund with $13.3 billion in assets.
Reserve Bank of India Governor Duvvuri Subbarao signaled higher odds on Dec. 18 of a cut in interest rates next year as he held borrowing costs unchanged for a fifth policy meeting. Goldman Sachs Group Inc. (GS:US) said the next day it sees a “high likelihood” of a 50-basis point reduction in a policy review due on Jan. 29, Tushar Poddar, the bank’s chief India economist, wrote in a note to clients.
Overseas funds were net buyers of domestic stocks for a 29th day on Dec. 26, the longest stretch of net purchases since a record 41-day streak through Oct. 27, 2010, taking net purchases in 2012 to $24.2 billion, the highest among 10 Asian markets tracked by Bloomberg, excluding China, data compiled by Bloomberg show.
The S&P CNX Nifty Index (NIFTY) on the National Stock Exchange of India rose 0.7 percent to 5,908.35. The BSE Mid-Cap Index added 0.8 percent. India VIX, which gauges the cost of protection against losses in the Nifty, fell 0.8 percent to 13.63, data compiled by Bloomberg show.
Reliance Industries, owner of the world’s largest refining complex, surged 2.8 percent to 840.25 rupees. Oil & Natural Gas, the nation’s biggest oil explorer, increased 2.6 percent to 265.80 rupees. Oil India Ltd. added 1.5 percent to 466.05 rupees.
Indian Oil Corp., the country’s biggest state-run refiner, surged 3 percent to 268.85 rupees. Hindustan Petroleum Corp. jumped 4.2 percent to 293.05 rupees. Bharat Petroleum Corp. soared 2.4 percent to 352.30 rupees.
The government will increase diesel prices by 10 rupees per liter over the next 10 months to pare subsidies. Singh’s administration last pared fuel subsidies on Sept. 13, which sparked a 7.9 percent rally in the Sensex, the most among the BRIC nations.
Finance Minister Palaniappan Chidambaram has pledged to narrow the budget shortfall to 5.3 percent of GDP this fiscal year ending March, from 5.8 percent in 2011-2012. Last year’s gap was the widest among the largest emerging markets, fanned by a subsidy program ranging from diesel to fertilizers.
“The hike in the diesel price by 1 rupee per month would be positive for oil marketing companies,” A.K. Prabhakar, senior vice president for equity research at Anand Rathi Financial Service Ltd. in Mumbai, said today. He expects shares of oil marketing companies to rally 8 percent to 15 percent over the next six month.
Sterlite Industries rose 2.4 percent to 116.90 rupees. Maruti Suzuki India Ltd. (MSIL), the biggest carmaker, gained 1.2 percent to 1,500.40 rupees. Wipro Ltd. (WPRO), the third-biggest software services provider, added 1.7 percent to 392.05 rupees, while larger rival Infosys Ltd. (INFO) increased 1.6 percent to 2,323.20 rupees.
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