Sensitive Index Climbs as Investors Seek Indian Haven for Economic Growth

Indian stocks advanced as investors judged the nation’s economic growth outlook provides a haven for equities after a drop in U.S. jobless rates damped the outlook for global expansion.

Hindustan Unilever Ltd., the local unit of the world’s second-largest consumer-goods maker, climbed for a seventh day to its highest level in at least 19 years. DLF Ltd., the nation’s biggest real estate developer, advanced 5 percent, its steepest gain since May. India’s government lifted the cap on foreign investment in bonds to increase funds available for roads and power plants.

“Investors have looked at the quality of companies in India and clearly they’re much better than what we see elsewhere in the region,” said Rahul Chadha, head of India equities at Mirae Asset Global Investment, in a Bloomberg Television interview today. “It’s a good structural story with strong domestic consumption and the economy remains in a sweet spot.”

The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 184.17, or 0.9 percent, to 20,045.18, completing its longest weekly winning streak since April 9. The gauge has climbed 25 percent from a May 25 low, helping it breach 20,000 this week for the first time since January 2008, and putting it on course for its longest stretch of quarterly gains since at least 1979.

The S&P CNX Nifty Index on the National Stock Exchange advanced 1 percent to 6,018.30. The BSE 200 Index added 0.9 percent to 2,532.46.

Spending Plans

Hindustan Unilever advanced 3.8 percent to 314.95 rupees, its highest close since at least January 1991. DLF added 5 percent to 365.25 rupees, its steepest gain since May 10.

The foreign limit on government bonds due in more than five years was doubled to $10 billion, the Ministry of Finance said late yesterday. Investors were also allowed to buy $5 billion more obligations with similar maturities sold by infrastructure companies, boosting the permitted amount in corporate debentures to $20 billion.

India plans to double spending on building infrastructure projects to $1 trillion in the five years to 2017, according the country’s Planning Commission. The economy expanded 8.8 percent last quarter from a year earlier, the most among major economies after China and Brazil.

Valuations

U.S. applications for unemployment benefits unexpectedly rose last week, a sign companies in the world’s largest economy remain cautious about hiring as growth slows. The U.S. has fallen behind emerging markets in Brazil and India as the preferred place to invest, a September Bloomberg poll showed, while still ranking highest among all major developed countries.

Foreign fund inflows to India’s equities have increased 64 percent this year, making the benchmark index the most expensive in Asia and among the BRIC markets that also include Brazil, Russia and China. Stocks on the Sensex are valued at 19 times earnings, compared with 13 times for Brazil’s Bovespa Index, 7.7 times for Russia’s Micex Index and 15.9 times for China’s Shanghai Composite Index.

“Whether the market is going to fall or rise will depend on the fund inflows,” said Yogesh Radke, head of quantitative research at Edelweiss Securities Ltd. in Mumbai. “The current rally has been driven by foreign investors.” Overseas funds bought a net 15.1 billion rupees ($331 million) of Indian equities on Sept. 22, taking total investments in the stocks this year to 802.4 billion rupees, according to the nation’s market regulator.

Foreigners have invested 208.6 billion rupees in equities this month, compared with 116.9 billion rupees in August. The flows pushed the Sensex to the highest level in more than 2 1/2 years on Sept. 21 and helped the rupee rebound 4.8 percent from an eight-month low in May. Equity purchases this year include 216.4 billion rupees from the primary market, the regulator said.

Inflows from overseas reached a record 834.2 billion rupees in 2009, exceeding the high set two years ago in local currency terms, as the biggest advance in 18 years lured foreign funds. They sold a record 529.9 billion rupees of shares in 2008, triggering a record annual decline.