Consumer stocks and related exchange traded fund were lead the rally in India equities after an the Reserve Bank of India’s unexpected rate cut to stimulate growth amid receding inflationary pressures.
The EGShares India Consumer ETF (NYSEArca: INCO), which tracks the Indxx India Consumer Index of 30 Indian consumer companies, has jumped 7.9% for the week ended Friday. Meanwhile, the benchmark S&P BSE SENSEX Index only gained 2.4%. The consumer sector has been outperforming the broader market, with INCO up 59.9% over the past year.
India’s central bank reduced interest rates by 25 basis points to 7.75% Thursday, acting ahead of the scheduled RBI policy meeting on February 3, Reuters reports.
“This demonstrates RBI’s confidence in the evolving inflation outlook and it shows that they are putting faith in government’s fiscal consolidation plan,” Radhika Rao, economist at DBS Bank Ltd., said in the Reuters article.
The country has been grappling with run-away inflation. The rate cut suggests a level of confidence in the country’s ability to subdue inflation ahead. The lower inflation outlook would also lend support to local consumers.