India Shares Surge on Oil Price Drop, Prospect of Modi Stimulus

(Bloomberg) -- India’s shares climbed for a seventh session after a sharp decline in oil prices and amid optimism policy makers will move to stimulate the economy, including cutting the sales tax for a number of products.

The S&P BSE Sensex climbed 0.4 percent to 36,484.33 in Mumbai, adding to a 4 percent gain over the past six days and on course for its longest stretch of advances since July. The NSE Nifty 50 Index climbed 0.5 percent.

Investor confidence was buoyed in sectors from cement to consumer goods after Prime Minister Narendra Modi said that the country’s unified sales tax regime had stabilized and is reaching a stage where 99 percent of goods can be at or under the 18 percent tax slab.

Sentiment was also boosted by a three-day drop in the price of Brent crude, India’s biggest import. Oil near a 14-month low will help keep a lid on inflation and reduce input costs for a number of sectors including aviation, paints and chemicals.

India Shares Surge on Oil Price Drop, Prospect of Modi Stimulus

The Numbers

  • Seventeen of the 19 sector indexes compiled by BSE Ltd. advanced, led by a gauge of realty companies.
  • ITC Ltd. and Housing Development Finance Co. gave the biggest boosts to the benchmark; Asian Paints Ltd. and Axis Bank were the top performers on the gauge.
  • Reliance Communications Ltd. plunged as much as 13% after a report that India has rejected its deal to trade airwaves.
  • J Kumar Infraprojects Ltd. rose as much as 11% after winning an expressway contract.
  • Ultratech Cement Ltd up as much as 4.1%, Shree Cement Ltd. as much as +4.8%, Ambuja Cements Ltd. as much as +5% and ACC Ltd. as much as +4.8%.
  • Some Indian state-run lenders surged after a government official said rules that curb unprofitable banks from lending may be eased; Bank of Maharashtra rose as much as 14%, Bank of India climbed as much as 7.7% while Allahabad Bank advanced 5.8%

Strategic View

  • “Prime Minister’s statement clearly indicates that fiscal stimulus is coming in full force and the market is cheering it,” says Ajay Srivastava, managing director at Dimensions Consulting Pvt. Ltd. “The positive mood should help take the market till the next earnings, which we expect to be poor given the muted festive season for companies.”
  • “The decline in crude prices is very bullish for small and mid-cap companies that had seen a sharp fall,” said Abhimanyu Sofat, head of research at IIFL Securities Ltd. in Mumbai. “Lower oil prices address the market concern on margins and earnings, and the small and mid-cap segment now offers great value.”
  • “A declining trend for crude and a rising rupee can help wipe our current account deficit,” Sofat said. “With the central bank announcing more open market operations to buy bonds, improved liquidity will also help push consumer credit.”

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