Mumbai: Indian assets kicked off the month on the front foot, bucking the weakness across Asia as a slowing economy, US trade tariffs and a slump in oil prices sparked speculation that the central bank would cut rates later this week.
The S&P BSE Sensex gauge of stocks rose to a record 553.42 points to end at record high of 40,267.62 in Mumbai and all 19 sector indexes advanced led by beaten-down automakers. The rupee climbed and benchmark bond yields slid to an 18-month low after data late Friday showed gross domestic product rose 5.8% last quarter from a year earlier, a slower pace than economists expected.
Indian assets are extending gains after the Sensex capped its third monthly increase in May and benchmark yield posted its biggest monthly loss since November 2016. The rally has come amid a slide in global yields sparked by an escalating US-China trade war and a sweeping election victory for Prime Minister Narendra Modi, which last week led to $1.5 billion of foreign inflows into local shares and debt.
While the US said Friday it would impose tariffs on previously duty-free Indian products, a slump in the price of oil lowers the import bill of the fastest-growing oil consumer and improves the outlook for inflation, which is already below the central bank’s target.
“The market optimism is emanating from slower GDP and the crash in oil prices, which is very good for Indian macros,” said Paresh Nayar, Mumbai-based head of currency and money markets at FirstRand Ltd. A 25-basis point rate cut is discounted and the market is looking for a change in the central bank’s stance at its policy decision Thursday, he said.
Still, the trade tensions and domestic economic challenges will limit further upside for equities, said Jitendra Panda, managing director at Peerless Securities Ltd. in Kolkata. Liquidity has dried up in recent months as demand for cash picked up ahead of six-week general election, putting a lid on investment and consumption.
“Slowing economic growth and lower auto sales remain in focus and investors await the government’s plan to deal with these challenges,” he said.
All 19 sector sub-indexes compiled by BSE Ltd. advanced led by a gauge of auto companies HDFC Bank contributed the most to the index advance, increasing 1.02%. Hero MotoCorp had the largest gain, rising 5.39%. ITC Ltd was the biggest drag on the index, declining 0.77%. ONGC had the biggest drop, falling 1.51%. – Bloomberg