Sensex climbs to two-year high on earnings



Mumbai: Indian stocks rose from a two-year high after Reliance Industries Ltd., the country's largest company by value, reported profit that exceeded estimates. The BSE India Sensitive Index increased 0.3 per cent to 20,101.82 at the close, with volumes exceeding the 30-day average by 16 per cent. Reliance, owner of the world's largest refining complex, climbed to more than a 19-month high after third-quarter net income rose the most in two years. Bharat Heavy Electricals Ltd., the biggest power-equipment producer, rallied the most in a month.

The Sensex surpassed 20,000 last week for the first time in two years, as the government allowed refiners to increase diesel prices to cut the nation's budget deficit. The decision is the latest in a series of measures announced since September by the government to boost economic growth. The gauge may climb to 22,500 this year if policy measures are sustained, Deutsche Bank AG wrote in a January 15 report.

"The market is betting on two things: the reforms coming through will feed into the economy later this year, and if you have rate cuts then that will help the economy turnaround," Jyotivardhan Jaipuria, head of India research at Bank of America Corp., said in an interview to Bloomberg TV India Monday.

Reliance, controlled by billionaire Mukesh Ambani, posted a 24 per cent increase in December-quarter profit after trading ended on January 18. Net income increased 24 per cent to Rs.55 billion, surpassing the Rs.50.1 billion median estimate in a Bloomberg News survey. The stock advanced 2.2 per cent to Rs.919.95, the highest close since June 13, 2011.

Earnings cycle
Only one out of 10 Sensex companies that have reported December-quarter earnings has trailed forecasts. That compares with 40 per cent of index firms in the three months ended September 30, the same as for the three months ended June, data compiled by Bloomberg show.

Housing Development Finance Corp., the largest mortgage lender, yesterday said profit increased 16 per cent to Rs.11.4 billion, matching analysts' estimates. The stock fell 1.2 per cent to Rs.812.5. NTPC Ltd., the largest power producer, said profit rose 22 per cent to Rs.26 billion, beating estimates. The shares fell 1.8 per cent to Rs.161.6, after jumping 7.7 per cent last week.

"Earnings have been downgraded massively for the last two years and we are now probably somewhere close to the end of the downgrade cycle," Jaipuria said. "If things start changing in terms of interest-rate cuts and reforms, the market is willing to ignore the short-term macro news."

Eleven of 14 analysts in a Bloomberg News survey predict the repurchase rate will be cut by 25 basis points at a January 29 review, while two forecast a 50 basis point reduction.
The rate was last pared by half a percentage point in April. The wholesale-price index rose 7.18 per cent in December from a year earlier, the least since 2009, government data showed last week.

Fund flows
Bharat Heavy jumped 2.5 per cent to Rs.232.05. Maruti Suzuki India Ltd., the biggest carmaker, added 1.8 per cent to Rs.1,574.6. Larsen & Toubro Ltd., the largest engineering company, increased 2 per cent to Rs.1,567.35.

Prime Minister Manmohan Singh's measures to revive growth helped attract $24.5 billion of foreign inflows into India's stocks last year, the highest among 10 Asian markets tracked by Bloomberg, excluding China. Foreigners have bought a net $2.5 billion of shares this year, 82 per cent more than at the same time in 2012, data from the regulator show."Global easy money is heading toward equities and India remains a preferred market for flows," said Jaipuria. "Foreign investor sentiment toward India remains strong."The S&P CNX Nifty Index on the National Stock Exchange of India added 0.3 per cent to 6,082.30.

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