The rupee rose further by 0.3% to 66.7250 a dollar yesterday
Indian stocks advanced for a third day, helped by energy companies, as Asian equities climbed before the US Federal Reserve’s decision on interest rates.
Oil & Natural Gas Corp, India’s largest state-owned oil explorer, gained for a second day after falling to its lowest level since May 2009 on Monday as crude rebounded from a six- year low. GAIL India, the biggest natural-gas supplier, climbed the most in a week. Bharti Airtel, the top mobile- phone operator, surged the most in two months.
The S&P BSE Sensex added 0.7% to 25,494.37 at the close, tracking advances in the MSCI Asia Pacific Index, which capped its biggest gain in more than two months. Traders and economists expect the Fed will boost key rates, while indicating that any subsequent hikes will be gradual as long as economic growth remains steady.
Concern that higher US borrowing costs will damp demand for developing-nation assets has lingered over markets for most of the year. Foreign funds sold a net $9.5mn of shares on December 14, paring this year’s investment to $2.74bn. The annual inflow is the smallest since 2011, when they withdrew $511mn from Indian equities.
Oil & Natural Gas jumped 4.1%, the most since October 7 and the top performer on the Sensex. GAIL climbed 0.9%, taking this quarter’s advance to 14%.
Indraprastha Gas surged the most since July 1 and Gujarat Gas rose 5.2%. India’s top court temporarily banned some new diesel vehicles in Delhi and said only cabs running on CNG would be permitted to ply in the state and the National Capital Region.
The measures are aimed at curbing the alarming rise in pollution levels in the city.
Mahindra & Mahindra tumbled the most since August. India’s biggest maker of sport utility vehicles gets about 2% of its monthly sales volume from Delhi.
“Gas volumes are going to rise as more people start opting for CNG-run vehicles and Delhi govt. expands its fleet of CNG buses,” said Piyush Jain, an analyst at Morningstar Investment Services. “Indraprastha is the biggest gainer from the ban on diesel cars. Push for cleaner fuels like natural gas is also positive for other gas companies such as GAIL and Gujarat Gas.”
Bharti Airtel soared 3.6%, the most since October 19. ICICI Bank added 2.3%, ending a six-day decline. The Sensex has fallen 7.3% this year and trades at 15 times projected 12-month earnings. The MSCI Emerging Markets Index is valued at a multiple of 11.
Meanwhile the rupee rose for a second day by 0.3% to 66.7250 a dollar, according to prices from local banks compiled by Bloomberg.
The currency, seen as Asia’s most-resilient to a US rate increase by Australia & New Zealand Banking Group, weakened 2.1% last month in the region’s worst performance.
India’s sovereign bonds advanced the most in two weeks and the rupee rose as investors, after months of worrying about the impact of a US interest-rate liftoff, began buying assets on the assumption that the Federal Reserve will take small, measured steps.
Stocks gained as well, with a renewed decline in crude prices adding to the optimism on India, which imports about 80% of its oil needs, while central bank cash injections into the financial system allayed concern of a shortfall as companies make mandatory advance tax payments.
“Traders have been cautious in the last couple of months and we have seen a selloff in both equities and bonds in the run-up to the Fed policy meeting,” said Badrish Kulhalli, a fixed-income fund manager at HDFC Standard Life Insurance Co in Mumbai. “Now that the event is at hand, the market has priced in a 25 basis point hike and a dovish path for the future,” he said, adding that buyers are returning to the market.
The yield on Indian government bonds due May 2025 dropped five basis points to 7.74% in Mumbai, according to prices from the Reserve Bank of India’s trading system. That’s the biggest decline since December 1.
The chances of a Fed tightening have seen global funds cut holdings of Indian bonds and stocks by $2.6bn since October 31. Traders say the RBI intervened this month as the currency slid past the 67 level, and the monetary authority said for the first time it will step into the exchange-traded derivatives market if needed.
The central bank added a total of Rs443.8bn ($6.65bn) to the financial system through seven-, 13 and 5-day repurchase agreements yesterday.
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