By Pooja Thakur and Anoop Agrawal
July 23 (Bloomberg) -- Indian stocks, rupee and bonds soared on speculation Prime Minister Manmohan Singh will push for overseas investment in banking and insurance after surviving the nation's first confidence vote in a decade last night.
The benchmark Sensitive Index gained 3.8 percent to 14,642.63 at 10:51 a.m. local time, its highest in a month. ICICI Bank Ltd. and HDFC Bank Ltd. led lenders higher. The rupee advanced the most in 15 months.
The victory gives Singh a mandate to revive bills in insurance and banking that had been held up by his former communist allies, giving overseas companies a bigger role in the financial industry, Citigroup Inc. said. The win extends the tenure of a government that has delivered record economic growth and boosted overseas investment to an all-time high.
``It is going to bring a lot of confidence to local as well as overseas investors,'' Parthasarthi Mukherjee, treasurer of Axis Bank Ltd. in Mumbai, said. ``Asset prices will rise as the negative element that was priced in will get reversed; reforms will be re-initiated and that process would be smoother and quicker this time.''
The rupee gained 1 percent to 42.3150 against the U.S. dollar, the most since April 24, 2007. The currency had slumped 7.8 percent this year as overseas investors pared their holdings. India's 10-year bond yields fell eight basis points to 9.07 percent. A basis point is 0.01 percentage point.
Banks Gain
ICICI, India's second biggest, gained 8.7 percent to 719.5 rupees. HDFC Bank, the third largest lender, jumped 7.9 percent.
The cost of default protection on ICICI Bank and State Bank of India declined after the vote.
Five-year credit-default swaps on ICICI dropped 20 basis points to 345 and contracts on State Bank fell the same amount to 230, according to JPMorgan Chase & Co. prices. The cost to protect $10 million of ICICI debt from default is equivalent to $345,000 annually. A decrease in the price indicates improving investor perceptions of credit quality.
Nuclear power equipment makers rallied on speculation Singh's victory will increase orders for turbines and generators used in reactors. The confidence vote was triggered when Singh's erstwhile communist allies withdrew support from the government because of opposition to the U.S. nuclear energy accord.
Larsen & Toubro Ltd., the country's largest engineering company, climbed 4.8 percent and Bharat Heavy Electricals Ltd., India's largest power equipment maker, advanced 9.2 percent.
Bills Revived
Bills to open pension management to overseas investors and remove a 10 percent cap on the voting rights of foreign investors in non-state banks may be revived. The government has also been seeking to raise the foreign investment ceiling for insurers to 49 percent, from 26 percent, since 2006.
``Reforms that appear non-controversial include those in pensions, divestments, banking and finance-related amendments,'' may be debated in parliament, Citigroup analyst Rohini Malkani wrote in a note to clients. The vote is positive in part because of ``the absence of the Left, which was a stumbling block on the reform front since the government came to power in 2004.''
The victory would also give the Singh administration more time to curb inflation stoked to a 13-year high by surging fuel and food prices before they begin a re-election bid. The central bank has raised borrowing costs to a 6 1/2-year high and asked banks to set aside more funds to curb price increases.
``Once this event is over, the focus will move back to oil, inflation and interest rates,'' said Ajay Bodke, who helps manage about $1 billion in Indian equities at IDFC Asset Management Co.
Five-Day Streak
The Sensitive Index has climbed 17 percent since July 16, set for its biggest five-day winning run since April 11, 2000. The stock market, Asia's fifth biggest, surpassed $1 trillion in value last year. It has jumped almost five-fold since May 2004, when the stock market lost a quarter of its value following the Congress Party's decision to join with communist groups that opposed plans to cut subsidies, sell state assets and fire workers, to form a majority government.
Trading was suspended twice on May 17, 2004, after the previous administration, which had said it would hasten the pace of asset sales, failed in its re-election bid. The Sensex and the S&P CNX Nifty Index fell up to the exchange-imposed limits for the first time since the Bombay Stock Exchange was created in 1875 on that day.
Rupee Advanced
The rupee has advanced 6.5 percent against the dollar since the Congress Party proposed Manmohan Singh as its candidate for prime minister on May 18, 2004. The currency has gained in 10 of the 17 quarters after Singh took office, and risen in three of the five years through 2008.
The rupee has slumped 7.8 percent this year as a surge in oil prices increased import costs and overseas investors pared their holdings after inflation accelerated.
Benchmark bond yields touched a seven-year high this month after climbing every year since 2004 as economic growth that averaged almost 9 percent in the past four years, the fastest since independence in 1947, stoked demand and inflation.
The 10-year yield touched 9.55 percent on July 11, the highest since 2001, according to data compiled by Bloomberg.
The central bank has raised benchmark interest rates 11 times since October 2004 to curb accelerating inflation.
To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
Posts
No comments:
Post a Comment