Sensex Climbs for Second Day on Fed Stimulus Speculation

Indian stocks climbed for a second day amid speculation that the US Federal Reserve would announce further measures to stimulate the world’s biggest economy.

Tata Consultancy Services, the nation’s largest software services exporter that gets 90 per cent of its sales from abroad, surged the most in two years. Bajaj Auto Ltd, the second-largest motorcycle maker, reached its highest level this year. Reliance Industries, owner of the world’s largest refinery complex, advanced 1.1 per cent.

The Bombay Stock Exchange benchmark, the Sensex, rose 156.77 points to 16,498.47. The S&P CNX Nifty rose one per cent to 4,948.90. Its August futures settled at 4,947.40. The BSE 200 Index added 0.9 per cent to 2,045.77.

“You have a very clear message from the Federal Reserve that they are going to keep the Fed funds rate at zero to 25 basis points for a long period,” Robert John Parker, a senior advisor at Credit Suisse Asset Management, said in an interview with Bloomberg UTV on Tuesday. “I think the message from Bernanke on Friday is that the Fed will continue to provide very high volumes of liquidity to support the money markets.”

The MSCI World Index of global equities rebounded from the lowest level since September before US central bankers meet this week in Jackson Hole, Wyoming. Last year, Fed Chairman Ben S Bernanke’s hint of a second round of asset purchases spurred a 28 per cent jump in the S&P 500.

The Sensex last week had its longest weekly losing run since 2008 on concern the US economy was slowing and Europe’s debt crisis may spread, hurting corporate profits already threatened by rising interest rates.

‘BUYING OPPORTUNITY’
Tata Consultancy surged 6.9 per cent to Rs 981.6, its biggest rally since July 2009. Nearest rival Infosys Ltd added 3.8 per cent to Rs 2,276.95. The Bombay Stock Exchange IT Index has declined 16 per cent this month ,compared with the nine per cent fall in the Sensex.

“We’re long on information technology worldwide; it’s an interesting buying opportunity,” Credit Suisse’s Parker said. “The sell-off in IT is probably discounting lower levels of growth which we are going to get.”

Bajaj Auto rallied 4.3 per cent to Rs 1,544.85, its best close since December 2010. BHEL, the biggest power-equipment maker, rose 2.6 per cent to Rs 1,761.15. Reliance was up 1.1 per cent to Rs 765.25 . Its August futures settled at Rs 765.2. The Reserve Bank of India has increased its repurchase rate 11 times since the start of last year to damp living costs that are rising the fastest among the so-called BRICS nations. The benchmark wholesale-price inflation in July rose 9.22 per cent from a year earlier, after a 9.44 per cent jump in June.

BEAR MARKET
The Sensex has fallen 22 per cent, exceeding the 20 per cent level that marks a so-called bear market for some investors. Companies on the measure trade at 13.7 times estimated earnings, down from 21.5 times last March.

“The right strategy is to adopt a policy of buying on dips averaging back into markets, including the Indian market where valuations on a relative basis are now looking more interesting than they have been any time this year,” Credit Suisse’s Parker said. “At least for the next three to six months, macroeconomic factors will determine investor mood. As we go into September and early October we will start to see better economic data.”

Earnings for 46 per cent of Sensex companies missed analyst estimates in the three months ended June 30. That compares with 33 per cent that trailed forecasts in the previous quarter.

Foreign investors have sold $1.7 billion of equities this month, set for the worst monthly flow since May 2010, as higher borrowing costs weighed on company earnings.