Overseas investors are stepping up purchases of Indian shares, buying the most since February on May 15, amid speculation slowing inflation will give the central bank more scope to cut interest rates to stoke economic growth.
Foreigners bought $311 million more of local stocks than they sold May 15, the most since Feb. 7, according to data from India’s regulator. They purchased a net $227 million of shares yesterday, data showed today, taking total inflows into stocks this year to $13.4 billion. That’s a record for the period and the second-largest among 10 Asian markets tracked by Bloomberg, behind Japan.
India’s wholesale-price index rose 4.89 percent in April, the least in 41 months, the government reported this week, prompting Reserve Bank of India Governor Duvvuri Subbarao to say the data will be factored into decisions at the next policy meeting on June 17. The S&P BSE Sensex (SENSEX), India’s benchmark stock index, climbed 0.8 percent this week to complete a fifth weekly advance, the longest stretch of gains since October.
“Flows are coming in on expectation of a lower interest rate regime as inflation dips,” said Debasish Mallick, chief executive officer at Mumbai-based IDBI Asset Management Ltd., which manages about $1.1 billion. “The easy money policy of global central banks will support flows into India.”
The RBI this month cut the repurchase rate to 7.25 percent from 7.5 percent, joining policy makers in Australia, Europe and South Korea in trimming borrowing costs to support growth. The monetary easing has fueled inflows into emerging markets, including India, helping the Sensex rebound 11 percent from a seven-month low reached April 9.
India’s record current-account gap, along with elevated consumer prices, has deterred the RBI from reducing rates at a faster pace even as growth in Asia’s third-largest economy slowed to a decade-low of 5 percent in the year ended March, according to an estimate from the government.
Subbarao trimmed rates May 3 for the third time this year and said there is little space for further easing as price-growth pressures may return.
The Sensex added 0.2 percent to close at 20,286.12 in Mumbai, the highest level since Jan. 5, 2011. It has climbed 4.4 percent in 2013, the most among benchmark measures in the so-called BRIC group of the largest emerging nations.
The Indian gauge trades at 14 times projected 12-month profit, the highest reading since Oct. 6. The MSCI Emerging Markets Index trades at a multiple of 10.6, data compiled by Bloomberg show.
Foreigners have been net sellers of Indian stocks in just two of the past 13 years, based on data compiled by Bloomberg going back to 2000. Inflows climbed to $24.5 billion last year, the most among 10 Asian markets tracked by Bloomberg. The flows helped the Sensex rally 26 percent in 2012, the measure’s best performance in three years.
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