India’s benchmark stock index rose to its highest level in a week as the outlook for Indian exporters improved and after Citigroup Inc. raised the rating for the country’s equities.
Infosys Ltd., the second-largest software maker, paced gains among exporters. Sterlite Industries (India) Ltd., the country’s largest copper producer, rose 8.6 percent after prices of the metal rallied on the London Stock Exchange. State Bank of India (SBIN) Ltd., the nation’s largest lender, rebounded 2 percent from a two-year low after an Economic Times report cited Chairman Pratip Chaudhuri as saying the bank will cut its holdings of government bonds and boost lending to companies.
The BSE India Sensitive Index, or Sensex, rose 2.8 percent to 16,232.54 at the 3:30 p.m. close in Mumbai. The volume of Sensex shares traded was 58 percent higher than the six-month daily average. The gauge has dropped 13 percent in the three months to Sept. 30, the worst performance since the last quarter of 2008, amid concern record interest-rate increases by the central bank will hurt growth as Europe’s debt crisis worsens and the U.S. economy slows.
The S&P CNX Nifty Index on the National Stock Exchange of India gained 2.9 percent to 4,888.05. Indian markets were closed for a holiday yesterday.
India may introduce incentives for exporters to cushion them from a slowdown in developed markets, the Press Trust of India reported. Citigroup raised its rating on Indian stocks to “neutral” based on a decline in global commodity prices, lower share valuations and a short-term peak in borrowing costs, according to a report dated yesterday.
Exporter Incentives
“India has underperformed too much relative to developed markets in the last 20 to 30 days and the wide gap has to narrow,” Samir Arora, founder of hedge fund Helios Capital Management Pte, said in a Bloomberg UTV interview today. “If the world calms down, India could have a decent rally.”
Global stocks climbed after European Central Bank President Jean-Claude Trichet said yesterday the ECB will resume covered- bond purchases and reintroduce yearlong loans for banks. The European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default.
India’s economy may expand 7.9 percent in the year ending March 31, lower than the 8.2 percent growth estimated in April, the Asian Development Bank said in a report on Sept. 14.
Shares of exporters rallied after the Press Trust of India cited an unidentified official as saying India may introduce measures including interest subsidies to protect them from the impact of faltering markets. Commerce and Industry Minister Anand Sharma will likely announce the steps on Oct. 13, the report said.
‘Real Risk’
Infosys jumped 2.5 percent to 2,508.7 rupees. Wipro Ltd. (WPRO), the third biggest software exporter, rallied 1.8 percent to 333.8 rupees.
“It certainly sounds like policy makers in Europe are understanding the situation with the banking system and it looks like they are getting more willing to recapitalize the banks,” said Belinda Allen, a senior investment analyst at Colonial First State Global Asset Management in Sydney, which oversees about $145 billion. “That has been a positive step, but we haven’t seen that yet. I think it is a real risk until we see an announcement.”
Sugar Exports
Shree Renuka Sugars Ltd. (SHRS) paced gains among makers of the sweetener after Food Minister K.V. Thomas said Oct. 5 that the government may allow 500,000 metric tons of exports by the end of this month and a similar quantity by Nov. 30. Shree Renuka jumped 3.3 percent to 52.10 rupees and Balrampur Chini Mills Ltd. (BRCM), the country’s second-biggest maker, climbed 2.7 percent to 45.80 rupees.
Sterlite Industries rose to 113.5 rupees while Hindalco Industries Ltd. (HNDL), the second-biggest copper maker, increased 4.8 percent to 125.9 rupees.
Copper traders and analysts are the most bullish since August on speculation prices at a one-year low will spur China, the world’s largest buyer, to build stockpiles. Ten of 15 respondents surveyed by Bloomberg expect copper to rise next week and 5 predicted a drop.
State Bank of India gained to 1,752.3 rupees. The bank will also insure trade credit given to exporters, the Economic Times report said. Moody’s Investors Service cut Mumbai-based State Bank’s financial-strength rating this week, saying the highest interest rates among Asia’s biggest economies and slowing growth may make it harder for people to repay loans.
Among other lenders, ICICI Bank Ltd. (ICICIBC) jumped 5.8 percent to 824.45 rupees while HDFC Bank Ltd. (HDFCB) rose 2.6 percent to 450 rupees.
Default Risk
The risk of holding India’s debt is rising the most in two years amid concern higher borrowing costs will spur an increase in bad loans, credit-default swaps on bonds of the nation’s largest state-run bank show.
Bharti Airtel Ltd. (BHARTI), the country’s biggest mobile services company, fell 3.1 percent to 354.8 rupees after Goldman Sachs Group Inc.’s local brokerage unit, in a research note dated Oct. 6, cut its share price estimates by 2 percent, citing anticipated higher foreign-exchange losses.
Central bank Governor Duvvuri Subbarao has increased the repurchase rate by a total of 350 basis points starting mid- March 2010, the fastest round of increases since the central bank was set up in 1935, to contain prices that are rising the fastest among the BRICS nations of Brazil, Russia, India, China and South Africa.
The Reserve Bank of India last raised its repurchase rate on Sept. 16 to 8.25 percent from 8 percent, after India’s inflation climbed to a 13-month high of 9.78 percent in August. The RBI meets Oct. 25 for its next policy review.
Food Inflation
India’s food inflation accelerated to a three-week high, maintaining pressure on the central bank to raise interest rates further.
An index measuring wholesale prices of agricultural products gained 9.41 percent in the week ended Sept. 24 from a year earlier, the commerce ministry said in a statement in New Delhi today. It rose 9.13 percent the previous week.
Manufacturing expanded in September at the slowest pace in 2 1/2 years, a report showed on Oct. 3, a sign that higher borrowing costs are cooling demand. The Purchasing Managers’ Index was at 50.4 last month from 52.6 in August, HSBC Holdings and Markit Economics said in the report. That’s the weakest reading since March 2009. A number above 50 indicates expansion.
The Sensex has retreated 21 percent this year amid concern the European crisis and slowing U.S. economic growth may compound the effects of record rate increases on corporate profits. Companies in the Sensex trade at 13.7 times estimated profits, down from 21.5 times in March 2010. The MSCI Emerging Markets Index is valued at 9.4 times.
Earnings for 47 percent of Sensex companies lagged behind analysts’ estimates in the quarter ended June, compared with about 33 percent in the previous three months.
Overseas investors sold a net 9.66 billion rupees ($196 million) of Indian equities on Oct. 4, taking their outflow this year to 23.5 billion rupees, according to data on the website of the Securities and Exchange Board of India.
To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
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