Indian Stocks Advance as Slowing Inflation Boosts Rate-Cut Hopes

Indian stocks rose on speculation softening inflation will prompt the central bank to cut interest rates for a third time this year.

The S&P BSE Sensex climbed 0.6 percent to 18,357.80 at the close in Mumbai, with volumes 34 percent less than the 30-day average. State Bank of India jumped 3.1 percent and state-owned Oil & Natural Gas Corp. increased the most in about two months, the best performer on the gauge. ITC Ltd., the nation’s largest tobacco manufacturer, advanced to a two-week high.

Gains in the wholesale prices slowed to 5.96 percent last month, the smallest gain in 40 months, government data showed today. A decline in oil below $90 a barrel for the first time in more than a month and a plunge in gold prices to the lowest level since March 2011 may help give some respite to a country that ships in more than 80 percent of its oil needs and is the world’s biggest buyer of bullion, said A.K. Prabhakar, senior vice president of Anand Rathi Financial Services Ltd. in Mumbai.

“Falling commodity prices will cool inflation further, providing the central bank more room” to cut borrowing costs, Nilesh Karani, assistant vice president of research at Magnum Equity Broking Ltd., said by phone today. “The selloff in oil and gold bodes well for stocks.”

While the Reserve Bank of India cut funding costs in March for a second time this year, it has said lingering inflation curbs the scope for further cuts. The next review is on May 3.

State Bank advanced to 2,146.3 rupees, the highest close since March 19. ONGC jumped 3.3 percent to 319 rupees, the sharpest gain since Feb. 19. Reliance Industries Ltd., owner of the world’s largest refining complex, advanced 2.4 percent to 793.6 rupees, the most in almost two months. ITC increased 2.4 percent to 299.95 rupees.

Infosys Rebounds

Bharti Airtel Ltd., the largest cell-phone company, gained 2.3 percent to 279.65 rupees. Infosys Ltd., India’s second-biggest software maker, climbed 1.9 percent to 2,339.05 rupees after plunging 21 percent on April 12, the most in a decade.

Foreign funds bought a net $17.1 million of Indian shares on April 12, data compiled by Bloomberg show. Funds were net sellers for six days through April 9, the longest stretch of withdrawals since May, on concern the slowest economic growth in a decade and the fastest inflation rate among major emerging nations will dent sales of goods from cars to cement.

The Sensex dropped the most in seven weeks on April 12, completing a second week of losses. The gauge has retreated 5.6 percent this year and trades at 12.3 times projected 12-month profits, compared with a multiple of 13.5 times at the start of 2013. The MSCI Emerging Markets Index trades at 10.2 times.

“The market is desperate for good news and the big fall in gold and oil helped sentiment,” Andrew Holland, chief executive officer of investment advisory at Ambit Capital Pvt. in Mumbai., said by e-mail. The fall in commodity prices “will help bring down inflation but more significantly for markets, the pressure on current-account deficit would ease.”

The 50-stock CNX Nifty Index rose 0.7 percent to 5,568.40. Its April futures settled at 5,560. India VIX, which measures the cost of protection against losses in the Nifty, rose 1 percent to 16.61.

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