BackSensex rises 89 points to a two-week high on RBI move; banks surge
Shares of ICICI Bank, Yes Bank and L&T lead gains
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Mumbai: Indian stocks climbed to a two-week high and bonds advanced the most in a month after the Reserve Bank of India (RBI) on Monday cut the marginal standing facility rate by half a percentage point to 9%, paring the banks’ borrowing cost.
Yes Bank Ltd jumped as much as 9.3%, helping a measure of lenders to its first gain in three days. Engineering company Larsen and Toubro Ltd (L&T) rallied 2.4%, sending the S&P BSE Capital Goods Index to a three-week high. Tata Motors Ltd, the owner of Jaguar Land Rover, climbed to a record. Real-estate developer DB Realty Ltd rallied to a three-month high.
The S&P BSE Sensex increased 0.44%, or 88.51 points, to 19,983.61, the highest close since 20 September, amid volumes that were 31% less than the 30-day average. The index opened at 20,094.21 points and rose as much as 1.28%, or 255.17 points, to 20,150.27 in the intra-day trade.
The S&P BSE Realty index rose 1.57% to be the biggest gainer, while the S&P BSE Metal index was the biggest loser, falling 0.80% among sectoral indices.
Reserve Bank of India (RBI) governor Raghuram Rajan rolled back an emergency step taken to shore up the currency, cutting the marginal standing facility rate to 9% from 9.5% after the rupee jumped from a record low in August. He raised the benchmark repurchase rate last month to fight elevated inflation.
“The move signals a shift in monetary policy back to normal, which is comforting market sentiment," U.R. Bhat, the Mumbai-based managing director of Dalton Capital Advisors India Pvt. Ltd, a unit of UK-based Dalton Strategic Partnership Llp, said by phone. “Now that the rupee has stabilized, fighting inflation will continue at a normal platform. We can expect a halt of further increases in interest rates."
Yes Bank was the top performer on Tuesday in the S&P BSE Bankex Index, which rose 0.7%, ending a two-day decline. ICICI Bank Ltd surged 2.3%, the first gain in three days.
L&T rallied to ₹ 828.10 and Tata Motors climbed to ₹ 350.55, a record. The S&P BSE Capital Goods Index jumped 1.3%, the highest close since 19 September. DB Realty surged 8.33% to ₹ 61.75, the highest since 21 June.
Liquidity support
The yield on the 7.16% government notes due May 20 23 slid 19 basis points, or 0.19 percentage point, to 8.50%, according to the central bank’s trading system. That was the biggest drop since 4 September. The rupee closed unchanged at 61.795 per dollar.
“The cost for cash will come down and that should help bonds in the short term," said Mohan Shenoi, head of treasury at Kotak Mahindra Bank Ltd in Mumbai. The move indicates the central bank will support cash in the system.
Rajan has said he plans a measured rollback of liquidity curbs imposed on the banking system, and offered concessional swaps for lenders’ foreign-currency deposits and borrowings to encourage them to raise dollars, helping spur the currency’s recent rally. The rupee has still lost about 16% in the past 12 months.
‘Encourage flows’
Rajan’s predecessor D. Subbarao increased both the marginal standing facility and bank rates by 200 basis points in July to try and stem a decline in the rupee, which had been weighed down by a current-account deficit, inflation and the weakest economic growth in a decade.
Overseas funds bought a net $2 billion of local shares in September, the first monthly inflows since May, after Rajan announced plans to boost the rupee when he took charge on 4 September. Foreign investors bought a net $130 million of local stocks on 7 October, taking this year’s purchases to $13.8 billion, data from the regulator showed on Monday.
The easier monetary conditions should be well received by equities, potentially encouraging foreign inflows to the Sensex, Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, wrote in a research note on Tuesday.
Infosys Ltd, India’s second-largest software exporter, will be the first Sensex company due to post quarterly earnings on 11 October. Revenue growth for Sensex companies in the three months ended 30 September will rebound sharply after falling for the last three quarters, Religare Capital Markets said in a note to clients on Monday.
Overnight rate
The Sensex has risen 2.9% this year and is valued at 13.8 times projected 12-month profits, compared with the five-year average of 14.1 times. The MSCI Emerging Markets Index is trading at 10.5 times.
The overnight interbank borrowing rate declined 50 basis points to 9%, data compiled by Bloomberg show. One-year interest-rate swaps, derivative contracts used to guard against fluctuations in funding costs, dropped 24 basis points to 8.42% in the biggest decline since 19 September.
One-month onshore rupee forwards rose 0.1% to 62.34 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts were little changed at 62.45. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars. Bloomberg
Mint’s Ravindra Sonavane contributed to this story.
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