India’s Nifty Futures Gain on RBI’s Reserve-Ratio Cut

Indian stocks climbed for a second day after the central bank unexpectedly cut the reserve ratio and factory output climbed at the fastest pace in seven months.

State Bank of India, the biggest lender, jumped 3.8 percent, pacing gains among its peers. Larsen & Toubro Ltd. (LT), the largest engineering company, advanced 3.6 percent. Reliance Industries Ltd. (RIL), the most valuable company, soared 3.2 percent.

The BSE India Sensitive Index (SENSEX), or Sensex, rose 0.5 percent to 17,587.67 at the close, paring an intraday advance of 1.5 percent. The Reserve Bank of India cut the cash reserve ratio by 75 basis points to 4.75 percent after trading ended on March 9, the lowest since 2004, and factory output in January jumped 6.8 percent, after a revised 2.5 percent gain in December, the government said today. The central bank’s rate review on March 15, a day before the presentation of the annual budget, capped gains in the stock index, according to Peerless Mutual Fund.

“On a normal day, the reaction to the cash reserve ratio cut and good industrial production number would have been much better,” said Kaushik Dani, a fund manager at Peerless, which has $880 million in assets. “Given the crucial events toward the end of the week, the mood is cautious.”

A faster-than-estimated gain in industrial output signals production is withstanding the impact of higher borrowing costs on domestic demand and the fallout for exports from Europe’s debt crisis. The RBI, which raised interest rates a record 13 times from March 2010 to October last year to cool the fastest inflation among BRIC nations, has signaled readiness to lower funding costs as inflation eases.

‘Government Challenge’

Consumer prices held at close to the lowest level in 26 months in February. Still, this year’s 17 percent jump in in Brent oil, the benchmark for almost all of India’s imports, threatens to spur price rises.

“The challenge for the government and the central bank is to boost growth without fuelling inflation,” Avinash Gupta, vice president of equity research at Globe Capital Market Ltd., said in an interview from New Delhi.

The Sensex has risen 14 percent this year as foreign funds poured $7.7 billion into shares as of March 9, a record for the period, amid optimism the RBI will ease its monetary policy as inflation eased. The gauge trades at 15.5 times future earnings, compared with 19.4 times at the end of 2010. The MSCI Emerging Markets (EEM) Index trades at 10.7 times.

The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India rose 0.5 percent to 5,359.55. Its April futures settled at 5,424.60. India VIX (INVIXN), which measures the cost of protection against losses in the Nifty, gained 3.1 percent to 26.27, its first climb in four days. The BSE 200 Index (BSE200) added 0.7 percent.

Lenders Rally

State Bank rose 3.8 percent to 2,310.8 rupees, extending this year’s rally to 43 percent, while ICICI Bank Ltd. (ICICIBC) added 1.6 percent to 928.25 rupees. The BSE India Bankex Index added 1.2 percent, its third straight day of gains.

Larsen & Toubro climbed 3.6 percent to 1,349 rupees. Reliance advanced 3.2 percent to 798.55 rupees.

Bharat Heavy Electricals Ltd. (BHEL), the biggest power-equipment maker, gained 2.2 percent to 284.95 rupees. Havells India Ltd. (HAVL) climbed 3.7 percent to 580.5 rupees, leading gains on the BSE India Capital Goods Index, which rose 2.6 percent.

Overseas funds bought a net 13.6 billion rupees ($271 million) of stocks on March 9, raising their investment in local equities this year to 381.8 billion rupees, according to the nation’s market regulator.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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