Indian equities reentered a bull market with the benchmark index climbing to an 11-month high as Asian stocks rose after better-than-expected US jobs data brightened the global economic outlook.
The S&P BSE Sensex jumped 1.8% to its highest level since August 19 at the close in Mumbai. The gauge has rebounded 20% from a low reached in February, fitting the definition of a bull market, as overseas funds bought shares at the fastest pace in more than a year amid forecasts for above-normal rainfall after back-to-back droughts and a recovery in company earnings.
Indian equities tracked advances in global markets after the S&P 500 Index came near to a record close on Friday following a report that showed US jobs grew the most in eight months in June. The MSCI Asia Pacific Index rose the most in three weeks and Japanese shares rallied the most in four months after Prime Minister Shinzo Abe’s ruling coalition won an election, paving the way for more fiscal stimulus.
“Today’s rally can be attributed to easing in global liquidity,” Lancelot D’Cunha, chief executive officer at Crest Wealth Management, said by phone from Mumbai.
“The June-quarter earnings season is expected to be much better than the last quarter. Also, there are expectations of further reforms by the government in the monsoon session of parliament beginning next week.” He’s advising clients to buy shares of auto and non-banking financial companies.
The government will succeed in passing the Goods and Services Tax Bill in the parliament session due to start July 18, ANI reported yesterday citing Transport Minister Nitin Gadkari. The tax is India’s biggest economic reforms in decades.
The administration in June eased rules on foreign direct investment, approved a new mining policy and accepted a plan to boost salaries for federal staff.
The measures that helped soften the impact of the central bank Governor Raghuram Rajan’s impending departure that was announced days before the UK’s referendum to leave the European Union on June 23. Tata Motors was the second-best performer on the Sensex yesterday.
The owner of Jaguar Land Rover has rallied 75% since gauge entered a bear market on February 11.
ICICI Bank, the country’s biggest non-state lender, climbed for the first time in four days and Shriram Transport Finance Co rallied 5.7% to an all-time high. NTPC, the largest power producer, rallied to a three-month high. Adani Ports & Special Economic Zone jumped 4.8%.
Investors are focused on the earnings season, which gets underway on Thursday with Tata Consultancy Services reporting results for the three months ended June. Infosys, the nation’s second-biggest software exporter, and Reliance Industries, owner of the world’s largest refining complex, will report on Friday.
About 66% of the companies in the NSE Nifty 50 Index posted March-quarter results that beat or matched estimates, compared with 52% in the previous three months.
Operating profits climbed about 10%, the biggest increase since September 2014, reversing declines in four of the previous five periods, data compiled by Bloomberg show.
An expanding economy, helped by normal monsoon so far this season, and a rebound in global commodity prices will aid the recovery in company profitability, Gautam Sinha Roy, a fund manager at Motilal Oswal Asset Management Co, said in an interview. Metal and energy companies have a combined 10% weighting in the Nifty gauge.
The Sensex trades at 16.6 times projected 12-months profits, versus a five-year average of 14.3 and a multiple of 12 for the MSCI Emerging Markets Index, the data show.
“The valuations are not worrying as commodity prices have troughed out and earnings are recovering,” Sinha Roy said.
Foreigners bought $94mn of shares on July 8, taking this year’s inflows to $3bn. They invested $771mn in June, capping a fourth month of purchases, the longest run of inflows since April 2015, data compiled by Bloomberg show.
Meanwhile the rupee rose the most in almost two weeks amid optimism a rally that propelled local stocks to a bull market will lure more foreign inflows.
“The overall picture seems to be pretty rosy for Indian equities and that will attract more inflows into shares,” said Gaurav Sharma, a senior currency analyst at Religare Commodities in Noida, near New Delhi. “Improved risk appetite, because of the surge in global and local stocks, is getting reflected in the rupee.”
The Indian currency appreciated 0.4%, the most since June 29, to 67.1350 a dollar in Mumbai, prices from local banks compiled by Bloomberg show.
That pared its loss this year to 1.5%. The yield on 10-year government bonds was at 7.38%, little changed from Friday, when the securities capped the longest stretch of weekly gains since April.
Religare predicts the rupee will appreciate to 65.50 a dollar by the end of 2016, Sharma said. Strong recent showers have taken rainfall for the monsoon season that began June 1 to 1% above normal as of July 10, compared with a deficit of 25% seen mid-June. The four-month spell affects both summer and winter sowing in India.
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