India's stock market advanced to the highest level in 19 months after the political impasse over allowing foreign companies to open supermarkets ended and Goldman Sachs upgraded the nation's equities.
The benchmark BSE India Sensitive Index jumped 1.8 percent Thursday to 19,170.91, the highest close since April last year. Volumes on the 30-stock gauge were more than twice the 30-day average, data compiled by Bloomberg show. Housing Development Finance Corp., Cipla Ltd. and HDFC Bank Ltd. surged to records. Tata Motors Ltd., ICICI Bank Ltd. and Bajaj Auto Ltd. increased by more than 4 percent each.
A political deadlock ended after the government agreed to opposition demands for a vote on its decision to allow foreign firms to set up supermarkets, paving the way for functioning of parliament after four days of adjournments. Goldman Sachs Group Inc. upgraded India to overweight, citing recovery in growth, continued policy reforms and declining inflation.
“There is an intent and this is probably the most serious attempt by this administration to push through reforms,” Sam Mahtani, who oversees about $5 billion as director of emerging markets at F&C Asset Management, said in an interview Thursday to Bloomberg TV India. “Even if they achieve a third or 40 or 50 percent that is still significant. We are not expecting everything to happen in this particular political environment.”
The parliament session has been repeatedly adjourned as the opposition led by the Bharatiya Janata Party accused the government of reneging on a promise to win legislative support for the foreign retail policy. The government gave ground after talks with allies and regional parties that have signaled they are unlikely to vote against the ruling bloc. The policy is part of measures to spur growth in an economy that probably grew at the weakest pace since 2009 in the September quarter.
Data Friday may show gross domestic product expanded 5.3 percent from a year ago in the September quarter, according to the median estimate in a Bloomberg survey. That matches Finance Minister Palaniappan Chidambaram’s Nov. 24 forecast.
Housing Development Finance, the biggest mortgage lender, jumped 2.8 percent to 821.8 rupees, an all-time high. ICICI Bank, the second-biggest lender, rose 4.6 percent to 1,081.75 rupees. HDFC Bank advanced 2.8 percent to 699.85 rupees, the highest close since listing in May 1995.
Tata Motors, the owner of Jaguar and Land Rover luxury brands, soared 4.4 percent to 278.45 rupees. Bajaj Auto, the second-largest motorcycle maker, rallied 4.7 percent to 1,950.4 rupees. Drugmaker Cipla climbed 3.5 percent to 404.55 rupees, its highest-ever closing price.
Reliance Industries Ltd., owner of the world’s largest refining complex, added 1.5 percent to 798.3 rupees. Larsen & Toubro Ltd., the nation’s largest engineering company, gained 2.4 percent to 1,662.90 rupees.
The Sensex has increased 24 percent this year, driven by foreign flows and policy measures. The gauge is the second-best performer this year among benchmark measures in nations with at least $1 trillion in value, data compiled by Bloomberg show.
“For India, upside drivers include a recovery in growth, a decline in inflation, and the potential for continued policy reforms,” Goldman Sachs said in a report dated Thursday. “With structural issues being addressed and a cyclical recovery on the horizon, the equity market may bounce strongly next year.”
The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. jumped 1.7 percent to 5,825. Its December futures closed at 5,871.40. Eight out of the 50 stocks on the measure touched their highest levels in 52 weeks. The Nifty may climb to 6,600 by December 2013, Goldman Sachs said.
The rally was aided by traders closing out bets on the last day of the November contracts. Combined open interest, or total number of contracts held, in put options for the November series with strikes ranging from 5,400 to 5,800 topped 800,000, data compiled by Bloomberg show.
“The main driver was heavy short-covering, which led to this stunning rally,” said Kishor Ostwal, managing director at CNI Research Ltd. in Mumbai.
A put option gives investors the right to sell. Derivative contracts in India expire on the last Thursday of every month. In a short sale, speculators borrow and sell an asset, betting it will drop in value so they can buy it back at a lower price and pocket the difference. Short-covering refers to purchases to close out those bets.
The rally boosted the local currency, which rose the most in more than two months on optimism of more foreign inflows. The currency advanced 1.2 percent from Nov. 27 to 54.8250 per dollar in Mumbai, the most since Sept. 21.
Overseas investors were buyers of domestic shares for a 10th day on Nov. 27, purchasing a net $210 million of stocks, data from the market regulator show. Foreigners have bought a net $19.4 billion of shares this year, the most among 10 Asian markets tracked by Bloomberg, excluding China, the data show.
“We expect to see further inflows into emerging markets over the next 12 months and clearly a certain percentage of that will come into India,” F&C’s Mahtani said.
The Sensex is valued at 15.7 times estimated earnings, compared with the MSCI Emerging Markets Index’s 11.6 times, according to data compiled by Bloomberg.
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