MUMBAI: Indian stocks MUMBAI: India's benchmark stock index rose to the highest level in two weeks amid optimism the government will take more measures to boost growth.
The BSE India Sensitive Index, or Sensex, advanced 0.5 per cent to 19,476, the highest close since December 6. Tata Motors Ltd., owner of Jaguar and Land Rover, and Sterlite Industries led carmakers and materials producers higher. SREI Infrastructure Finance and Edelweiss Financial Services, which are not part of the Sensex, rallied, leading gains among non-banking finance companies.
Lawmakers approved changes in the nation's banking laws yesterday, raising a cap on voting rights and giving more power to the central bank in a move that may attract investment to the industry. Reserve Bank Governor Duvvuri Subbarao signaled higher odds of a reduction in interest costs, lifting investor confidence even after he held the benchmark rate yesterday for a fifth policy meeting. Goldman Sachs Group Inc. yesterday said it sees "high likelihood" of a 50 basis points cut in January.
"It appears the RBI will finally start to cut rates," said Mahesh Patil, co-chief investment officer at Birla Sun Life Asset Management Co., India's fourth-biggest mutual fund with $13.3 billion in assets. Patil said he expects the RBI to cut rates by up to 75 basis points in 2013. The money manager is buying so-called rate-sensitives such as automakers and lenders, and exiting utilities and consumer staples, he said.
Subbarao kept the repurchase rate at 8 per cent and held the banks' reserve ratio at 4.25 per cent, withstanding calls from Finance Minister Palaniappan Chidambaram for lower rates to revive an economy forecast by the government on December 17 to expand at the slowest pace in a decade this fiscal year.
Still, with inflation cooling, monetary policy has to "respond to the threats to growth," the authority said. The RBI's next policy review is on January 29.
Tata Motors, which also makes the world's cheapest car, the Nano, surged 3.2 per cent to Rs.307.75, a seven-month high. Maruti Suzuki India Ltd., the biggest carmarker, rallied 2.3 per cent to Rs.1,509.75. Motorcycle maker Bajaj Auto Ltd. also added 2.3 per cent to Rs.2,143.05.
Sterlite added 1.4 per cent to Rs.119.9. Hindalco Industries Ltd., an aluminum producer, climbed 1.7 per cent to Rs.129.65. Tata Steel Ltd., the biggest producer of the alloy, gained 2.4 per cent to Rs.424.1.
The additional regulatory powers approved on Tuesday take the central bank a step closer to issuing new bank licenses, part of a process that has been under way for more than two years. The amended law will allow the RBI to take control of a bank and inspect the books of lenders' associate enterprises.
The rules for new permits will be issued after the central bank has received the new powers, Subbarao said last month.
SREI Infrastructure Finance increased 2.4 per cent to Rs.46.35. Edelweiss rose 2.1 per cent to Rs.36. LIC Housing Finance Ltd. added 1.6 per cent to Rs.287.55.
Prime Minister Manmohan Singh's administration began a campaign in mid-September to revive economic growth from the weakest levels since 2009 and avoid a credit-rating downgrade by paring fuel subsidies and opening up retailing and aviation to foreign investment. The passing of the banking bill is the latest in the series of such steps.
"The government has woken up and taken decisive steps on foreign direct investment in retail, banking and infrastructure sectors, which has boosted sentiment," Birla's Patil said.
The Sensex has risen 26 per cent this year, headed for its biggest annual jump since 2009, as government steps to open the economy to offshore investment lured foreign funds. Overseas funds were net buyers of domestic stocks for a 23rd day on December 17, taking net purchases in 2012 to $22.5 billion, the highest among 10 Asian markets tracked by Bloomberg, excluding China, data compiled by Bloomberg show.
The Sensex is valued at 15.4 times estimated earnings, compared with the MSCI Emerging Markets Index's 12.1 times, data compiled by Bloomberg show. Volumes in the gauge exceeded the 30-day average by 34 per cent yesterday.
The S&P CNX Nifty Index on the National Stock Exchange of India added 0.6 per cent to 5,929.60. India VIX, which gauges the cost of protection against losses in the Nifty, gained 0.2 per cent to 14.47, data compiled by Bloomberg show.