Indian stocks advanced for a second week as metal producers and automakers climbed amid optimism the nation’s economic growth will accelerate.
Tata Motors and Coal India were the best performers on the S&P BSE Sensex this week. Hindalco Industries, an aluminium maker, capped its best week since October. Axis Bank rose to a nine-month high. Sun Pharmaceutical Industries and Bharat Heavy Electricals (Bhel) were the biggest decliners on the gauge.
The Sensex closed unchanged for the day, capping the week with a 0.7% increase. Faster-than-anticipated economic growth, a recovery in company earnings and forecast for above-average rain after back-to-back droughts has boosted investor confidence in the nation’s $1.4tn stock market. The gains have sent the index’s 14-day relative strength index to 70, the highest level in a year and at the threshold that some investors see as a signal to sell.
“If the monsoon’s intensity is as predicted then there’s some more juice in the rally, else the market will level out here for some time,” Raamdeo Agrawal, joint managing director at Motilal Oswal Financial Services, said in an interview in Mumbai.
The prediction for above-normal downpour for the first time since 2013 is seen boosting prospects of farm production and easing an acute drinking water shortage. Central bank governor Raghuram Rajan, who is due to review policy rates on Tuesday, said last month that expectations of plentiful rain will boost food output may help temper inflation after a jump in April. Rajan has cut the main rate by 150 basis points since the start of 2015 to a five-year low of 6.50%. A basis point is 0.01%.
“A terrific monsoon will cool food prices and that will allow the RBI to act” on rates, Agrawal said. “This is more important than the rest of the global, macro stuff.”
The monsoon is key to sustain India’s world-beating economic growth, which accelerated a faster-than-estimated 7.9% in the March quarter. The data cemented the nation’s position as a bright spot among emerging markets as China slows while Russia and Brazil see contractions.
As many as 66% of the companies in the NSE Nifty 50 index posted earnings in the March quarter that exceeded or matched estimates. This compares with 52% in the three months ended December, data compiled by Bloomberg shows. Sales for Sensex companies rose 7% year-on-year after five straight quarters of declines, the data show.
“There’s been a major trend reversal because of the improvement in earnings, the monsoon forecast and the macro factors,” Ashu Madan, chief operating officer at Religare Securities Ltd, said in an interview to Bloomberg TV India. “Majority of the trades in the past few months used to be hedged via a long-short portfolio. For the first time in months there are comforting signals that we’re moving up. It’s a buy-on-dips market.”
Meanwhile the rupee yesterday closed little changed against the US dollar, as traders turned cautious ahead of the key US jobs data.
The currency closed at 67.26, up 0.04% from its previous close of 67.29. The rupee opened at 67.24 per US dollar and touched a high and a low of 67.16 and 67.37, respectively.
The US jobs data will offer an indicator of whether the US Federal Reserve will pull the trigger in June. Fed chair Janet Yellen said last week that the ongoing improvement in the US economy would warrant another interest rate increase “in the coming months”, though stopping short of giving an explicit hint that the central bank would act at its June 14-15 meeting, Bloomberg reported.
India’s 10-year bond yield closed at 7.489%—a level last seen on 30 March, as compared with its Thursday’s close of 7.484%. So far this year, the rupee has weakened 1.64%, while foreign institutional investors (FIIs) have bought $2.33bn from the local equity market and sold $1.13mn in debt markets.
Most Asian currencies closed higher. Indonesian rupiah was up 0.35%, South Korean won 0.25%, Philippines peso 0.16%, Malaysian ringgit 0.11%.