Indian Stocks Rally for Third Day; Lenders, Metal Shares Gain

Indian stocks advanced for a third day, led by lenders and metal companies, amid expectation their earnings growth will be robust.

State Bank of India (SBIN), the biggest lender, paced gains among its peers after it raised interest rates on mortgages. Hindustan Zinc Ltd., the largest producer of the metal, surged to a record after reporting its highest-ever quarterly profit. Reliance Industries Ltd. (RIL), the nation’s most valuable company, reached a two-week high before its results later today.

“We expect earnings of banks, commodities and consumers companies to outpace the market earnings growth,” said Neelesh Surana, head of equities at a local unit of Mirae Asset Financial Group, which has about $2.5 billion invested in India. “We are looking at businesses that can withstand the current headwinds related to high oil prices and elevated interest rates.” He declined to comment on specific shares.

The Bombay Stock Exchange Sensitive Index, or Sensex, gained 131.25, or 0.7 percent, to 19,602.23 at the 3:30 p.m. close in Mumbai. The gauge climbed 1.1 percent this week. The S&P CNX Nifty Index on the National Stock Exchange climbed 0.6 percent to 5,884.70 and its April futures settled at 5,901.6. The BSE 200 Index added 0.4 percent to 2,415.54. The markets are closed tomorrow for a public holiday.

The rally in India mirrored gains in Asian equities. The MSCI Asia Pacific Index climbed to its highest since March 4 after U.S. companies including Apple Inc. (AAPL) reported increased profits, signaling the global economic recovery is accelerating, and commodity shares gained.

Home Loans

State Bank climbed 2.4 percent to 2,861.15 rupees, its highest close since Dec. 7. The lender ended its special home loan plan and linked its mortgage to base rates, Chairman Pratip Chaudhuri said yesterday, citing concern from the regulator over the plan that offered loans at below market costs in the first two to three years.

The “competitive pressure” in mortgages will ease after the move, Kotak Institutional Equities analysts led by Manish Karwa said in a report today.

Housing Development Finance Corp. (HDFC), the biggest mortgage lender, rose 2.4 percent to 732.2 rupees and its April futures settled at 733.95 rupees. HDFC Bank Ltd. (HDFCB), the third-biggest lender, rallied 1.6 percent to 2,410.65 rupees, its highest level since Oct. 14.

Expansion in India’s $1.3 trillion economy has increased consumer demand and spurred manufacturing, car sales and credit growth, stoking price risks and prompting the central bank to increase rates eight times since March 2010.

Banks to Benefit

“Higher interest rates driven by higher demand is beneficial for banks,” said Arun Khurana, a fund manager at UTI Asset Management Co. Pvt., India’s fourth-biggest mutual fund with $15.2 billion in assets. The UTI Banking Sector Fund that Khurana manages has returned 28 percent in the past year, compared with 12 percent gain in the Sensex.

The Sensex has fallen 4.4 percent this year on concern that rising borrowing costs will crimp profit growth. Companies on the index trade at an average 16.6 times estimated earnings, compared with 21.5 times in March 2010. The MSCI Emerging Markets Index is valued at 11.7 times.

Hindustan Zinc Ltd. (HZ), the largest producer, surged 3.2 percent to 151.9 rupees, its highest-ever close. Net income climbed to 17.7 billion rupees ($400 million), or 4.2 rupees a share, in the quarter ended March 31 from 12.4 billion rupees, or 2.93 rupees, a year earlier, the unit of U.K.-based Vedanta Resources Plc (VED) said today. The average of 19 analyst estimates compiled by Bloomberg was 13.7 billion rupees.

Metal Stocks

Sterlite Industries (India) Ltd., the No. 1 copper and zinc producer also controlled by Vedanta, rose 2.3 percent to 178.8 rupees. Hindalco Industries Ltd. (HNDL), the largest aluminum producer, increased 3 percent to 220.8 rupees. Tata Steel Ltd. (TATA), the biggest producer of the alloy, climbed 0.9 percent to 630.05 rupees.

Reliance rose 1.4 percent to 1,040.6 rupees. Profit may increase 15 percent to 54.3 billion rupees, according to the mean estimate among 14 analysts surveyed by Bloomberg News.

Tata Consultancy Services Ltd. (TCS), the world’s second-largest computer services provider by market value, said profit rose 23 percent to 24 billion rupees in the quarter ended March. That compares with the 23.6 billion-rupee average of 31 analysts’ estimates compiled by Bloomberg. The shares fell 2.2 percent to 1,192.1 rupees, reversing a matching gain.

“The earnings are marginally ahead of our estimates, but not blockbuster,” said Subhashini Gurumurthy, an analyst with Ambit Capital Pvt.

Overseas funds bought a net 20.6 billion rupees ($462 million) of Indian stocks on April 19, taking their investments in equities this year to 57.9 billion rupees, according to data on the website of the Securities and Exchange Board of India.

India’s economic expansion and corporate earnings lured foreign funds to buy a record $29.4 billion of local equities last year and made the Sensex the best performer and most expensive among the world’s 10 biggest markets.