Sensex advances; rupee ends lower

Indian stocks advanced after the government raised minimum assured prices for crops like cotton and paddy rice – a step that could potentially boost rural incomes and spending.The benchmark S&P BSE Sensex rose 0.8% to 35,645.40 points in Mumbai, reversing a decline of as much as 0.2%. Automakers Bajaj Auto and Maruti Suzuki India gained the most on the gauge.“Guaranteed returns over the cost of production may help boost consumer demand and benefit automobile companies,” Devansh Lakhani, a director at Lakhani Financial Services, said by phone.Higher minimum prices may help boost incomes of farmers, with about 800mn of India’s 1.3bn population depending directly or indirectly on agriculture. The government raised assured prices to ensure farmers get at least 50% more than their production costs, a move toward fulfilling Prime Minister Narendra Modi’s pledge to double farm incomes by 2022.Eleven of 19 industry sub-indexes compiled by BSE advanced, led by a gauge of automobile companies. Vehicle makers clocked strong sales growth in June, industry data showed this week. Car maker Maruti Suzuki’s total vehicle sales jumped 36% from a year earlier in June, while Bajaj Auto’s motorcycle sales climbed 65%. Meanwhile the rupee and bond prices were little changed after the government announced increase in support prices for crops. The rupee was trading at 68.62 against US dollar, down 0.06% from its previous close of 68.47. It opened at 68.53 and touched a high and a low of 68.47 and 68.64, respectively. The 10-year bond yield was at 7.882% from its Tuesday’s close of 7.883%. Bond yields and prices move in opposite directions.The minimum support price (MSP) for common-grade paddy, the biggest monsoon-sown food grain crop, was increased to Rs1,750 ($26) per 100 kilograms from Rs1,550 a year ago. Cotton purchase prices and the rate for soybeans were also increased by 50% on the same principle.Analysts expect that the hike in MSP will be inflationary and will increase governments procurement cost that may lead to fiscal slippages.Last week, Prime Minister Narendra Modi had announced that the Cabinet will approve the increase in MSP to at least 1.5 times of the production cost. Earlier in its latest February budget, the government had assured farmers of a minimum support price of 50% above cost.Traders will watch out for the US Federal Reserve meeting minutes due to be released today.So far this year, the rupee has weakened 6.9%, while foreign investors have sold $598.40mn and $6.11bn in equity and debt markets, respectively.