Indian stocks rally to fresh highs

India's stock market rallied to further highs on Monday, after output figures suggested that New Delhi was delivering on its promises to revive growth in Asia's third-largest economy.

The benchmark Sensex index was up 0.8 per cent at 26,858.04 by lunchtime in Mumbai, while the Nifty crossed the 8,000 mark, up 0.9 per cent at 8,027.2.

New government data, released after markets closed on Friday, showed the Indian economy grew 5.7 per cent year on year in the three months to June - the fastest rate in two years and ahead of the 5.3 per cent growth forecast in a Reuters poll of economists.

"It will be difficult for growth to sustain at the same rate but I think this GDP data captures this sense of optimism that has been in the business community," said A Prasanna, economist at ICICI Securities, explaining that expansion in government spending and in the agriculture sector may slow in the coming months.

"Though the headline figure may slow it could be good for the overall mix of growth," he added.

Investors have been optimistic since the pro-business government, led by Prime Minister Narendra Modi won power in New Delhi in May. As the first administration with a majority in some three decades, the new government has promised to focus on reviving India's beleaguered manufacturing sector.

The latest figures from the HSBC purchasing managers' index were also released on Monday and showed, however, that growth in the manufacturing sector was slowing marginally. The index dropped to 52.4 in August from a 17-month high of 53.0 in July, as orders rose more slowly than they did in the previous month, even though demand from key export clients was seen to be strengthening.

Large automotive groups led the markets higher on Monday, with a wider recovery in the sector boosting the latest sales figures, as consumer sentiment improves in India.

Maruti Suzuki, India's largest carmaker by sales, announced that sales rose 27 per cent year on year in August. The stock was up 4.5 per cent at Rs2,908 by lunchtime in Mumbai. Similarly, shares in Hero Motocorp were up 4.2 per cent at Rs2,715, after the group posted a 9 per cent year-on-year sales increase in July.

The Indian rupee remained broadly flat at Rs60.4788 against the US dollar, having strengthened in recent months as continued buying from foreign investors has driven the rally in Indian markets.

"The dollar is expected to strengthen because of what the Fed [US Federal Reserve] is going to do maybe next year, so that's a headwind for all Asian currencies," Mr Prasanna adds.

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