March 14 (Bloomberg) -- Indian stocks advanced for the first time this week on speculation a slowdown in non-food inflation will give the central bank room to reduce borrowing costs next week. Banks and consumer companies led the rally.
The S&P BSE Sensex jumped 1.1 percent to 19,570.44 at the close in Mumbai, with volumes exceeding the 30-day average by 10 percent. ICICI Bank Ltd. and HDFC Bank Ltd., India’s largest non-state lenders, climbed more than 2 percent. Hindustan Unilever Ltd., India’s biggest home-products maker, gained for the fifth day.
Non-manufactured goods prices, a gauge of core inflation, rose 3.77 percent in February after a 4.1 percent increase in January, according to Bloomberg calculations based on today’s benchmark inflation data. The reading fell below 4 percent for the first time in almost three years, Barclays Plc said in an e- mailed note. The economy will expand 5 percent in 2012-2013, the slowest in a decade, government data showed last month.
“While the headline number came in a little higher, core inflation has dropped significantly and this makes a case for a rate cut,” Kaushik Dani, a Mumbai-based fund manager with Peerless Mutual Fund, which has about $870 million in assets, said by phone. “The central bank may cut rates by 25 basis points to lend the government a hand in reviving the economy.”
ICICI Bank rallied 2.3 percent to 1,110.65 rupees, ending three days of losses. HDFC Bank increased 2.3 percent to 649.25 rupees. State Bank of India, the nation’s biggest, jumped 3.5 percent, the most since Sept. 21, to 2,255.05 rupees. The S&P BSE Bankex index of 14 lenders jumped 2 percent, the most in three months. Hindustan Unilever added 2.1 percent to 456.05 rupees, a fifth day of gains.
The S&P CNX Nifty Index increased 1 percent to 5,908.95. India VIX, which measures the cost of protection against losses in the Nifty, tumbled 9.5 percent to 14.66.
Today’s inflation data provides room for the central bank to ease monetary easing, Chakravarthy Rangarajan, chairman of the prime minister’s Economic Advisory Council, told CNBC-TV18 television today. Inflation and risks from the current-account gap may limit Reserve Bank of India Governor Duvvuri Subbarao to a quarter-point cut in the key rate on March 19, according to a Bloomberg News survey.
Fifteen of 16 economists surveyed by Bloomberg News expect the RBI to reduce the repurchase rate to 7.5 percent from 7.75 percent. The same number expect a similar cut in the reverse repurchase rate to 6.5 percent. The authority last cut the rate by a quarter point on Jan. 29.
The yield on 8.15 percent government bonds due 2022 fell 4 basis points to 7.87 percent, according to the central bank’s trading system. That’s the biggest decline since Jan. 17.
The Sensex tumbled 5.2 percent in February, its biggest monthly fall since May, as more index companies missed earnings estimates in the three months ended December and the economy grew in the quarter at the slowest pace in almost four years. The gauge is valued at 13.3 times projected 12-month profits, compared with the MSCI Emerging Markets Index’s 10.6 times, data compiled by Bloomberg show.
Overseas funds bought a net $56 million worth of shares yesterday, taking their net investment in local equities this year to $9.4 billion, a record for the period, data compiled by Bloomberg show. They purchased a net $24.5 billion of shares last year, the most among 10 Asian markets tracked by Bloomberg.
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--With assistance from Manish Modi and Kartik Goyal in New Delhi and V. Ramakrishnan and Jeanette Rodrigues in Mumbai. Editors: Ravil Shirodkar, David Merritt