Sensex advances most in 3 months; rupee rebounds

The Bombay Stock Exchange (right) is seen behind the High Court building in Mumbai. The Sensex rallied 1.9% to 28,067.31 points at the close yesterday, the best performer in Asia.Bloomberg/MumbaiIndia’s benchmark stock index notched its biggest gain in three months as wholesale prices dropped by the most on record, fuelling bets that central bank Governor Raghuram Rajan will cut interest rates.Vedanta, the biggest copper producer, rebounded from a six-year low. Reliance Industries, owner of the world’s largest refining complex, surged the most in three weeks. State Bank of India and ICICI Bank jumped more than 3.5% each, while Glenmark Pharmaceuticals advanced to a record after being added to the MSCI India Index. The rupee rebounded from a two-year low.The Sensex rallied 1.9% to 28,067.31 at the close yesterday, the best performer in Asia. For the week, it declined 0.6%. The drop in wholesale prices came after data on Wednesday showed retail inflation was lower than estimated. Speculation that India is less vulnerable to a slowdown in China and the rising cost of dollar financing has made the Sensex the biggest gainer among the four largest emerging markets in the past two months. The rupee has weakened less than other developing Asian currencies in the past month.“India is the only place in the emerging world where we are seeing an industrial pick up while inflation is falling, and the rupee has been really stable compared to the some of the moves we are getting elsewhere,” Jonathan Garner, head of Asia and emerging-market strategy at Morgan Stanley in Hong Kong, said in an interview with Bloomberg TV on Friday.The 52% plunge in Brent prices over the past year has helped cool India’s retail inflation, improved government finances and allowed Rajan to cut borrowing costs three times in 2015. Wholesale prices fell 4.05% in July from a year earlier, data showed yesterday, the steepest fall in readings going back to 2005.Consumer-price gains slowed to 3.78% in July, the lowest reading since November, data released Wednesday showed. Rajan left the key rate unchanged on August 4 as he sought more clarity on the impact of poor rains on food inflation, and the timing and the extent of an expected increase in US rates.“The enormous fall in commodity prices helps India to the top of the tree,” Garner said. India is Morgan Stanley’s top pick among emerging markets, he said. Even so, international investors pulled $440mn from local stocks in the week through Aug. 13, the most since the period ended May 1, as the stalling of the national sales tax bill outweighed improving economic data and China’s yuan devaluation roiled emerging markets.Reliance and Vedanta jumped 3.6% each yesterday. The rally pared Vedanta’s weekly loss to 17%, still the biggest since September 2008.Cipla climbed to a four-month high. The drugmaker will probably report first-quarter profit climbed 42% from a year ago to Rs4.3bn ($66mn), according to the median estimate of 25 analysts in a Bloomberg survey. The stock increased 1.9%.Hindalco Industries gained 2.6%, rebounding from a one-year low. The aluminum maker reported first-quarter profit of Rs1.07bn, missing the Rs1.62bn estimates of 19 analysts surveyed by Bloomberg.Seventeen of the 29 Sensex firms, or 59%, that have reported June-quarter profits have matched or beaten estimates, compared with 40% in the March quarter.Sun Pharmaceutical Industries, India’s most valuable drugmaker, added 2.1% to its highest since July 20. Glenmark surged 7.1% and Lupin added 2%.The Sensex has gained 2.1% this year and trades at 15.8 times projected 12-month earnings. The MSCI Emerging Markets Index is valued at a multiple of 11.1. Meanwhile the rupee snapped seven days of losses to gain 0.2% yesterday. The rupee weakened 1.8% from August 7 to 65.0075 a dollar, according to prices from local banks compiled by Bloomberg. That’s the sharpest weekly decline since the week- ended April 24. Asian currencies recorded the biggest weekly decline in four years after China’s surprise yuan devaluation raised concern the slowdown in the world’s second-biggest economy is deepening. The rupee on Thursday fell to the lowest level since September 2013 to 65.1050 a dollar as a central bank adviser said the currency needs to adjust downwards to help boost exports.The rupee had its sharpest weekly decline since April after China’s surprise yuan devaluation spurred a rout in Asian currencies.India’s sovereign bonds advanced, with the 10-year yield completing its biggest weekly drop in almost two months, on speculation cooling inflation will prompt the central bank to ease monetary policy.The yield on the securities due May 2025 fell six basis points this week, the most since the period ended June 19, to 7.75% in Mumbai, according to prices from the central bank’s trading system. It was little changed yesterday.“Odds are now in favour of another rate cut by the Reserve Bank of India,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts in New Delhi. “RBI’s decision is data-dependent and one couldn’t hope for a better inflation data than this.”RBI Governor Raghuram Rajan left the benchmark repurchase rate unchanged on August 4 after inflation quickened to its fastest pace in nine months in June. He has reduced the policy rate three times so far this year.