Bloomberg/Mumbai
Indian stocks gained for a second day, led by Hindustan Unilever, amid speculation parent company Unilever will raise its offer price after failing to buy enough shares to attain a 75% stake.
The S&P BSE Sensex rose 0.4% to 19,495.82 at the close in Mumbai, extending this week’s advance to 0.5%, a second straight week of gains. Hindustan Unilever, India’s biggest household products maker, rose to a record. Reliance Industries, owner of the world’s largest refining complex, added 2.2%, the biggest boost to the Sensex.
“The long-term consumer story looks very solid,” D K Aggarwal, chairman of SMC Investments & Advisors, which has about $100mn in assets, said by phone from New Delhi yesterday. “Short-term portfolio investments are dictated by global liquidity and monetary easing by central banks, but Indian companies are growing and there is a big untapped market that will continue to lure investors.”
Global consumer companies are looking to expand in India as disposable incomes increase and the government cuts barriers to investment. Stocks also climbed yesterday after European Central Bank President Mario Draghi pledged to keep interest rates at an all-time low for an “extended period.” That contrasts with the US Federal Reserve, which has signaled stimulus could be cut this year, prompting investors to flee emerging-market assets and fueling a global stock rout last month.
The European Union accounted for 17% of India’s exports in the fiscal year ended March 2012, government data show, making it India’s largest trading partner. Shipments to the US accounted for 11% in the same year.
“Our markets are driven by foreign inflows and a loose global monetary policy will spur demand for riskier assets,” Surya Narayan Nayak, an analyst at Networth Stock Broking, said by phone from Mumbai yesterday. “This will counter some of the concerns over tapering by the Fed.”
Hindustan Unilever rose 1.3% to Rs609.35. United Spirits fell 0.9% to Rs2,533.35. The stock had earlier rallied as much as 2.7% to a record Rs2,626 intraday. The stock has gained 33% this year, extending last year’s 286% surge.
Diageo, the world’s biggest distiller, bought a 14.98% stake for $521mn from a firm controlled by Vijay Mallya, raising its holding to 25.02% and giving the company a leading position in the world’s largest whiskey market.
United Breweries gained 2% to Rs856.35. United Breweries Holdings surged by the 10% limit to Rs27.5, extending this week’s rally to 22% and ending five weeks of losses. Kingfisher Airlines soared 9.8% to Rs5.05, taking this week’s gains to 26%, most on the S&P BSE 500 index. The three companies are controlled by Mallya. Reliance Industries rose 2.2% to Rs880.35, while ITC, India’s biggest cigarette company, increased 1.1% to Rs342.6. The two stocks contributed 73% of the rise in the Sensex yesterday as about three stocks rose for every two that fell on the 30-stock gauge.
Oil & Natural Gas Corp, the largest state-owned explorer, gained 2.3% to Rs316.05, ending a four-day, 6.6% drop. Bharat Heavy Electricals, India’s biggest power-equipment maker, rose 2.2% to Rs178.7.
Overseas funds bought a net $70mn of Indian stocks on Thursday, extending this year’s net inflow to $13.5bn, data from the market regulator show. Foreign investors withdrew a net $1.76bn of domestic stocks last month, the most since August 2011.
The Sensex has dropped 3.9% from a two-year high set on May 17 and trades at 13.1 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 9.7 times. The CNX Nifty Index on the National Stock Exchange of India increased 0.5% to 5,867.90.
Meanwhile, India’s rupee completed its ninth weekly drop, the longest losing streak in a year, after foreign funds continued to pull money from the nation’s debt as the Federal Reserve prepares to phase out its stimulus.
Overseas investors cut holdings of rupee bonds by $562mn in the first three days of this week after withdrawing a record $5.4bn in June, exchange data show. Fed Chairman Ben S Bernanke signaled last month $85bn a month of debt buying, which has fueled funds flows to emerging markets, could be tapered this year and ended in 2014. Goldman Sachs Group cut its rupee forecast, saying India may find it tough to lure capital to offset its record current-account deficit.
“The worsening funding environment for emerging markets could continue to put currencies which have high current-account deficits, such as the rupee, under pressure,” Tushar Poddar, a Goldman economist in Mumbai, wrote in a report released on Thursday. “Capital outflows from debt have had a large impact on the rupee.”
The Indian currency fell 1.4% this week to 60.2400 per dollar in Mumbai, the worst performance in Asia, according to prices from local banks compiled by Bloomberg. It dropped 0.2% yesterday, and touched a record low of 60.765 on June 26. Goldman sees the rupee at 60 per dollar in 12 months, compared with an earlier prediction of 56. It will depreciate to 62 by end-2014, the lender forecasts.
The rupee pared losses yesterday, after earlier dropping as much as 0.8%, on speculation the central bank sold dollars, two traders said, asking not to be named as the information isn’t public. The Reserve Bank of India intervenes only to manage volatility and doesn’t have an exchange-rate target or band, Governor Duvvuri Subbarao said on Thursday.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 35 basis points, or 0.35 percentage point, this week to 12.86%. It rose 21 basis points yesterday.
India’s 10-year sovereign debt offers a premium of 493 basis points over US Treasuries, down from this year’s high of 622 on April 5, according to data compiled by Bloomberg. The shortfall in the Asian nation’s broadest measure of trade rose to an all-time high of 4.8% of gross domestic product in the year ended March 31, official data show.
Three-month onshore rupee forwards fell 1.9% this week to 61.41 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts dropped 1.3% to 61.48.
Unilever raises stake in Indian unit HUL to 67%
Anglo-Dutch food giant Unilever said it has paid $3.2bn for an additional 14.8% in its Indian subsidiary Hindustan Unilever Ltd (HUL) as part of its strategy of expanding in emerging markets.
Unilever now owns 67.28% of HUL, India’s largest consumer-goods company by revenue, from an earlier 52.48%, according to a statement on its website.
Shareholders of HUL, which makes skin whitening cream “Fair and Lovely” and Dove and Lux soaps, were offered 319.7mn shares at the price of Rs600 per share in an open offer that ended on Thursday.
The acquisition fell short of Unilever’s plans to pay up to $5.4bn to raise its stake in HUL to 75%.
Unilever’s chief executive Paul Polman, said: “We are pleased to have received such a good response to our voluntary open offer and that as a result we will significantly increase our stake in Hindustan Unilever.”
The acquisition is part of Unilever’s strategy of investing in emerging markets as growth in revenues from developed countries slows.
“The open offer and its price reveals Unilever’s view that India is a very important market for it,” said Sonam Udasi, head of research with IDBI Capital.
India contributes 15-20% of Unilever’s revenues, analysts said, when consumer demand and growth in the developed markets of the US and Europe has slowed sharply.
The payment for shares tendered and accepted will be completed on or before 18 July, Unilever said.
HUL has a huge distribution network stretching across thousands of supermarkets and small retailers in India, and its sales are watched by analysts as a barometer of Indian consumer demand.
