Mumbai: Indian stocks rose, snapping the benchmark index’s longest losing streak in a year, as a slowdown in factory output eased concern of excessive interest rate increases by the central bank.
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ICICI Bank Ltd, the nation’s second largest lender, climbed the most in a month. O.P. Bhatt, chairman of State Bank of India, said raising borrowing costs is not good at this point of time. India’s industrial production grew 2.7% in November from a year earlier, the slowest pace in 18 months, a report showed on Wednesday. Tata Motors Ltd gained the most in more than seven months. The auto maker’s credit-default swaps have fallen below those of Ford Motor Co. as its China sales boost profit.
The Bombay Stock Exchange’s (BSE) sensitive index, or Sensex, added 337.76, or 1.8%, to 19,534.10 at close, its steepest gain since 22 November. The gauge plunged 6.6% over the previous six trading days amid concern the central bank may increase interest rates this month to control inflation.
“It’s a Catch-22 situation,” said Sadanand Shetty, a Mumbai-based senior fund manager at Taurus Asset Management Co., which manages about $665 million (Rs3,006 crore). There’s speculation in the markets that an interest rate increase by the central bank may not be as aggressive as earlier thought. The Reserve Bank of India (RBI) is scheduled to review monetary policy on 23 January.
Companies on the Sensex are valued at an average 18.5 times estimated earnings, compared with a recent peak of 20.1 times on 5 November. The S&P CNX Nifty Index on the National Stock Exchange rose 1.9% to 5,863.25. The BSE 200 Index increased 1.7% to 2,415.72.
The benchmark nine-year government bond yield fell the most since 24 December, dropping 3 basis points (bps), to 8.18% at 4pm in Mumbai. The yield has gained 27 bps this month on speculation borrowing costs may be raised.
ICICI Bank surged 4.6% to Rs1,069.45, its steepest gain since 10 December. State Bank of India advanced 2.2% to Rs2,669.70. The Bombay Stock Exchange Bankex Index climbed 2.7%, the most since 10 December, as all of its 14 members gained.
India should refrain from raising borrowing costs too much, Rajan Bharti Mittal, the head of a business group, said after meeting finance minister Pranab Mukherjee.
“Let the interest rate not be hardened up, because industry is in investment mode, so that those investments do not become unviable,” Mittal, president of the Federation of Indian Chambers of Commerce and Industry, said on Tuesday.
Tata Motors jumped 5.2% to Rs1,218, its steepest climb since 26 May. The credit-default swaps, used by investors to hedge against losses on bonds or to speculate on creditworthiness, have fallen to 246 bps from 304 bps at the start of December. Traders are paying about 282 bps for Ford, according to data provider CMA. One basis point is one-hundredth of a percentage point.
Sterlite Industries (India) Ltd, a copper producer, rallied 7.1% to Rs183.05, its steepest one-day climb since 21 June. The metal’s price in London climbed for a second day after Japan joined China in buying euro area bonds, easing concerns that Europe’s debt crisis may derail the global economic recovery.
Global funds sold more Indian stocks than they bought for a fourth straight day on 10 January, disposing of a net Rs1,090 crore ($239.5 million) of equities, according to data on the website of the Securities and Exchange Board of India.
Graphic Paras Jain/Mint