Sensex regains 27k after RBI status quo

STOCKS rose to a sevenmonth high, led by lenders, after the central bank said its monetary policy will remain accommodative even as it left borrowing costs unchanged.

ICICI Bank and State Bank of India were the top performers on the S&P BSE Sensex. Hindustan Unilever, the biggest home-products maker, rallied to more than a one-month high, and cigarette maker ITC climbed to a 15-month high. Sun Pharmaceutical Industries ended a sixday losing streak.

The Sensex rose 0.9% at the close to reclaim the 27,000 level for the first time since end-October. Reserve Bank of India governor Raghuram Rajan kept the benchmark rate at a five-year low of 6.5% and said the central bank remains willing to lower borrowing costs as long as conditions allow. The move comes after Federal Reserve Chair Janet Yellen said gradual rate increases are appropriate, diminishing the odds of a move this month or in July.

“The Fed hike is not likely to happen before September, and the Reserve Bank of India has indicated that its policy will continue to be accommodative,” said Nikhil Johri, chief investment officer at Trivantage Capital Management India in Mumbai. “There are no negatives right now.” He’s bullish on state-run banks because of their valuations.

Indian equities mirrored gains in emerging-market stocks, which rallied for a fourth day as a surge in commodities boosted the outlook for exporting nations and as odds of a U.S. rate increase by July fell to 22% from more than 50% a week ago.

Rally resumes

Forecasts for the strongest monsoon in two decades and a recovery in company earnings after declines in four of the past five quarters helped the Sensex cap its second week of gains rally on Friday. The gauge dropped 0.2% on Monday before the policy review.

“Earnings have bottomed out and that has boosted sentiments,” said Chokkalingam G, managing director at Equinomics Research & Advisory. “Plus, the outlook on the monsoon is positive. The market, which had paused for a couple of days due to the RBI policy, began rallying again after the policy uncertainty lifted."

Fitch pitch

ICICI Bank surged 4.3% to its highest price since April 26 and SBI rallied 5.6% to its highest level since January 6, sending a gauge of 10 lenders to its highest level since August 21.

Lenders rallied after the government said Tuesday it had pitched for a ratings upgrade with Fitch Ratings, according to Trivantage’s Johri. Fitch in December affirmed India’s BBB rating with a stable outlook. The nation is rated at the lowest investment grade by Fitch and rivals Moody’s Investors Service and S&P Global Ratings.

“State Bank and many other banks raise substantial borrowings from the dollarbond market, and a ratings upgrade happens the banks’ costs of raising money from offshore markets will come down,” he said.

Hindustan Unilever climbed to its highest level since April 21. Sun Pharmaceutical added 2%, ending a six-day, 12%drop. ITC advanced 2.2%.

Foreign investors bought a net $9.7 million of local stocks on Monday, taking this year’s inflows to $2.6 billion. The Sensex has risen 3.4% this year and is valued at 16.7 times 12-month projected profits. Bloomberg