Indian shares rally 2.7pc on rate cut expectations
Wednesday, 4 January 2012
MUMBAI, Jan 3 (Reuters): Indian shares rallied the most in nearly two weeks Tuesday, led by ICICI Bank, construction major Larsen & Toubro and software bellwether Infosys, as investors bet the central bank will soon start cutting interest rates to bolster growth.
Signs of an improvement in global risk appetite also boosted the outlook for capital inflows after foreign funds had been net sellers last year.
The 30-share BSE index rose 2.72 per cent, or 421.44 points, to 15,939.36, its highest close since December 26, with all but two of its components rising. The benchmark gained as much as 2.9 per cent during trade.
"People are slowly realising the fact that we are at the peak of the interest rate cycle and this has triggered a rally in the rate sensitive stocks," said Kaushik Dani, fund manager at Peerless Mutual Fund.
"There are chances of some sort of easing in the key rates this month."
BNP Paribas forecast the BSE index to trade in a range of 14,000-19,000 in the coming months and touch 18,500 by the end of 2012, helped by decline in inflation and interest rates and "eventual recovery" in some areas of infrastructure construction.
"Some domestic economic drivers are obvious - declining inflation and easing of the policy cycle are some of them," it said in a note. "We expect a mild recovery in the capex cycle
from 2H12 and the earnings downgrade cycle to continue in the near term, but to stop from around mid-2012."
Infosys rose nearly 2 per cent to 2,864.30 rupees, its highest close since Oct. 31. Brokerage CLSA upgraded the stock to 'outperform' from 'underperform', saying the company is best placed to capitalise on the weak rupee.
India's export-driven software services sector gets more than half their revenue from the United States and the rupee that slumped almost 16 per cent in 2011 is positive for the profit margins of the companies like Infosys and rival Tata Consultancy Services Ltd.
No 2 lender ICICI rallied 4.2 per cent, while bigger rival State Bank of India rose 4.8 per cent and HDFC Bank climbed 2.9 per cent on expectations the Reserve Bank of India (RBI) could start easing policy as soon as this month.
The RBI, which raised interest rates 13 times between early 2010 and last October to fight stubborn inflation, is likely to begin easing policy with the focus shifting to slowing growth, the governor told the BBC in an interview published Monday without saying when this will happen.
The BSE index was among the worst performers in the world in 2011, falling 24.6 per cent, with foreign portfolio investors pulling out $512 million, compared with inflows of more than $29 billion in 2010.
Traders are expecting a revival in foreign inflows after the government said on Sunday it would allow individual foreign investors to directly buy stocks from January 15. It was the latest step to liberalise the Asian economy after a year of big losses in the stock market.k
Signs of an improvement in global risk appetite also boosted the outlook for capital inflows after foreign funds had been net sellers last year.
The 30-share BSE index rose 2.72 per cent, or 421.44 points, to 15,939.36, its highest close since December 26, with all but two of its components rising. The benchmark gained as much as 2.9 per cent during trade.
"People are slowly realising the fact that we are at the peak of the interest rate cycle and this has triggered a rally in the rate sensitive stocks," said Kaushik Dani, fund manager at Peerless Mutual Fund.
"There are chances of some sort of easing in the key rates this month."
BNP Paribas forecast the BSE index to trade in a range of 14,000-19,000 in the coming months and touch 18,500 by the end of 2012, helped by decline in inflation and interest rates and "eventual recovery" in some areas of infrastructure construction.
"Some domestic economic drivers are obvious - declining inflation and easing of the policy cycle are some of them," it said in a note. "We expect a mild recovery in the capex cycle
from 2H12 and the earnings downgrade cycle to continue in the near term, but to stop from around mid-2012."
Infosys rose nearly 2 per cent to 2,864.30 rupees, its highest close since Oct. 31. Brokerage CLSA upgraded the stock to 'outperform' from 'underperform', saying the company is best placed to capitalise on the weak rupee.
India's export-driven software services sector gets more than half their revenue from the United States and the rupee that slumped almost 16 per cent in 2011 is positive for the profit margins of the companies like Infosys and rival Tata Consultancy Services Ltd.
No 2 lender ICICI rallied 4.2 per cent, while bigger rival State Bank of India rose 4.8 per cent and HDFC Bank climbed 2.9 per cent on expectations the Reserve Bank of India (RBI) could start easing policy as soon as this month.
The RBI, which raised interest rates 13 times between early 2010 and last October to fight stubborn inflation, is likely to begin easing policy with the focus shifting to slowing growth, the governor told the BBC in an interview published Monday without saying when this will happen.
The BSE index was among the worst performers in the world in 2011, falling 24.6 per cent, with foreign portfolio investors pulling out $512 million, compared with inflows of more than $29 billion in 2010.
Traders are expecting a revival in foreign inflows after the government said on Sunday it would allow individual foreign investors to directly buy stocks from January 15. It was the latest step to liberalise the Asian economy after a year of big losses in the stock market.k