ICICI Bank, State Bank of India and Axis Bank were among the biggest gainers on the S&P BSE Sensex and sent a gauge of lenders to its highest level in 11 months. Tata Steel rallied to more than a one-month high and Maruti Suzuki India, the largest car maker, jumped to its highest price in six months. Yields on bonds due in January 2026 are headed for the lowest close for benchmark 10-year debt since June 2013.
The Sensex climbed 0.66%, or 181.45 points, to 27,808.14, at close in Mumbai, extending Monday’s 1.8% gain that sent the gauge back into a bull market. The Nifty 50 index of the national stock Exchange of India closed 0.63%, or 53.15 points, higher at 8,521.05.
Banks have reported record losses as delinquent loans surged under Raghuram Rajan-led clean up, leading to allegations that his rigid rules and focus on inflation were stifling investment.
The new RBI governor may refrain from fresh asset reviews after the current one ends in March 2017, according to Nikhil Johri, chief investment officer at Trivantage Capital Management India in Mumbai.
Rajan took charge of the central bank in 2013, when the rupee hit a record low and the inflation rate was among Asia’s fastest.
After tight monetary policy and a crash in global oil prices helped damp price pressures, he began cutting borrowing costs last year and brought the benchmark rate to a five-year low of 6.5%.
The Sensex has rebounded 20% from a low reached in February amid forecasts for above-normal monsoon after back-to-back droughts and a recovery in company earnings. The rally has pushed up the index’s valuation to 16.6 times projected 12-months profits, versus a five-year average of 14.3 and a multiple of 12.1 for the MSCI Emerging Markets Index, data compiled by Bloomberg show.
“The market will consolidate at the current level as the rally has been superb,” RK Gupta, managing director of Taurus Asset Management Co, which oversees $590mn, said from New Delhi. “The gains have come on the hope of a good monsoon, better earnings and the GST bill getting passed in the monsoon session of Parliament. We might see a correction if any of these variables don’t work out.”
The government will succeed in passing the Goods and Services Tax Bill in the Parliament session due to start July 18, ANI reported on Monday citing transport minister Nitin Gadkari.
Meanwhile the rupee yesterday closed marginally lower against the US dollar, ahead of the possible announcement of new Reserve Bank of India (RBI) governor and key macroeconomic data. The currency closed at 67.18, down 0.07% from its previous close of 67.14. The local currency opened at 67.15 a dollar and touched a high and a low of 67.10 and 67.20, respectively.
10-year bond yield fell five basis points, its steepest fall since April 4, on the hopes of having a dovish new RBI governor. Earlier, Bloomberg reported that the government may announce the new RBI governor anytime soon.
India’s 10-year bond yield closed at 7.337%—a level last seen on June 19, 2013, compared with Monday’s close of 7.385%. It opened at 7.384% and touched a low of 7.318%.
So far this year, the rupee is down 1.5%, while foreign institutional investors (FIIs) have bought $3.01bn in equity and sold $1.80bn in debt markets.
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