Mumbai: Indian stocks rose, lifting the benchmark index higher for the first time in five days, as speculation that monsoon rains will boost agricultural output, potentially slowing inflation.
Mahindra and Mahindra Ltd, India’s largest maker of tractors, gained 1.1% as the nation’s agriculture secretary said wheat production may advance to a record for a fourth year. ITC Ltd, a consumer goods company, climbed the most in two weeks. Larsen and Toubro Ltd, the nation’s largest engineering company, advanced 1.1%.
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The Bombay Stock Exchange sensitive index, or Sensex, gained 42.63 points, or 0.2%, to 18,308.66, with two stocks rising for each one that fell. The MSCI Asia Pacific Index climbed 1.1%, gaining for the first time in five days, after a Chinese industrial production report exceeded economists’ forecasts.
It looks like a monsoon rally, said Arun Kejriwal, a director at Kejriwal Research and Investment Services Pvt. Ltd in Mumbai. Support from other Asian markets has helped. But investors are still sceptical as inflation, interest rates and slowdown concerns persist.
The Sensex has lost 11% this year, the most among benchmark Asian gauges tracked by Bloomberg, amid concerns that higher borrowing costs will crimp earnings. The Reserve Bank of India (RBI) may boost borrowing costs on 16 June for the 10th time since mid-March 2010 to curb inflation, 15 of 17 economists in a Bloomberg survey said.
The Sensex pared an increase of 0.6% on Tuesday after the government reported that its Wholesale Price Index rose 9.06% from a year earlier after an 8.66% jump in April. The median estimate of 22 economists in a Bloomberg survey was for an 8.74% increase.
The S&P CNX Nifty on the National Stock Exchange rose 0.3% to 5,500.50, after climbing 0.7%. The BSE-200 Index gained 0.3% to 2,281.30.
Investors have been monitoring monsoon rainfall this month to gauge the strength of agricultural production, which accounts for one-fifth of India’s economy. Monsoon rain has been 6% above average since 1 June, the weather bureau reported on Monday.
Production of corn, a crop sown during India’s monsoon season, may climb 7% from a record in the year ending June, said Gagan Gulati, the head of the grains business at Olam International Ltd’s Indian unit. Wheat output may climb 6.4% to 86 million tonnes in the year ending 30 June, India’s agriculture secretary P.K. Basu said on Monday.
With good rainfall, inflation will come down and that will have a positive impact on stocks, Anita Gandhi, director at Arihant Capital Markets Ltd, said on Monday.
The growth and inflation trade-off is getting increasingly challenging, Sudhakar Shanbhag, who manages about $1.8 billion in assets as Mumbai-based chief investment officer at Kotak Mahindra Old Mutual Life Insurance Ltd, said in an email. The stance from RBI, based on its expectation on growth and inflation, may still lean towards controlling inflation.
ITC rose 1.6% to Rs193.85 and its June futures traded at Rs194.80. The stock is the best performer among the 30 Sensex shares, with an 11% advance this year.
ICICI Bank Ltd, the second biggest lender, added 1.5% to Rs1,055.55 and its June futures traded at Rs1,061.20.
“We’re bullish and see value at current levels with a 9- to 12-month perspective,” Manoj Singla, managing director and co-head of research at Religare Capital Markets Ltd, said in Mumbai. He recommends DLF Ltd as the stock that may rebound. DLF gained 1.3% to Rs232.05. The shares closed on Monday at the lowest level since 27 May.
Graphic by Yogesh Kumar/Mint
Santanu Chakraborty contributed to this story.