Indian stocks gained, led by companies tied to the economy, as some investors bet the selloff that sent the benchmark gauge to its third weekly loss in a month was overdone.
Axis Bank and State Bank of India had their steepest gain in a week. Coal India, the world’s biggest producer, and Larsen & Toubro, an engineering firm, were among the top performers on the S&P BSE Sensex. Hindalco Industries and Vedanta, the largest producers of aluminum and copper, helped an index of metalmakers to a second day of gains.
The Sensex gained 0.8% at close, ending three days of declines. The gauge is set to post its worst monthly loss in more than four years as global funds withdrew $2.5bn from local shares since Jan. 1 as they turn averse to emerging-market assets. The selloff has dragged the index’s valuation to near the cheapest level since May 2014.
“Stocks are at reasonable valuations, which was not the case a year ago,” Mahesh Patil, co-chief investment officer at Birla Sunlife Asset Management Co, which has $20bn in assets, said in an interview to Bloomberg TV India. “India is not as inexpensive as other emerging markets but the growth outlook is much better going forward. I am seeing good opportunities, especially in large-cap names.”
The government must review its fiscal deficit targets, Finance Minister Arun Jaitley’sadvisers said in a report three days before he unveils tax and expenditure proposals for the year starting April 1. India’s current plan aims to shrink the gap by 0.4 percentage points in the year starting April 1, to 3.5% from an estimated 3.9%. Axis Bank rose 2.2% to Rs386.35, while State Bank of India jumped 2.7% to Rs155.90. Coal India rallied 4% to Rs311.45 and Larsen & Toubro added 2.2% to Rs1,110.65. Hindalco added 3.4% and Vedanta rose 3.2%.
The Sensex is valued at 14.4 times its estimated 12-month earnings, versus a multiple of 10.9 for the MSCI Emerging Markets Index. Foreigners sold a net $155mn of Indian stocks on Thursday, taking this month’s outflow to $836mn. They bought $3.3bn of shares last year, the smallest in four years.
Meanwhile the rupee rose 0.1% to 68.6325 a dollar, according to prices from local banks compiled by Bloomberg. It fell to as low as 68.7875 earlier, close to a record low of 68.845 seen in August 2013. It has weakened 3.6% this year in Asia’s worst performance after the won.
Indian sovereign bonds maturing in 2026 rallied the most since the notes were issued in early January on optimism cash supply will improve as the central bank announced plans to buy back more debt.
The Reserve Bank of India will purchase as much as Rs120bn ($1.7bn) of notes on March 3, according to a statement after the close of markets on Thursday. It has already bought back securities worth Rs300bn through open-market operations over the past three months in a bid to tackle a cash squeeze that’s driven bond yields and short-term rates higher. The government is scheduled to announce its borrowing program in Monday’s budget.
The yield on notes maturing in January 2026 fell eight basis points to 7.78% in Mumbai, according to prices from the RBI’s trading system. The bonds completed a fourth straight weekly loss, with the yield having risen four basis points from February 19.