Mumbai: Indian stocks advanced for the first time this week, erasing an earlier decline, ahead of the monthly expiration of derivatives contract.

Drugmaker Lupin Ltd. rallied to a three-week high. Vedanta Ltd. rebounded from an intraday drop of as much as 3.7%. ICICI Bank Ltd. and HDFC Bank Ltd., India’s two biggest private lenders, climbed at least 1% each. Mahindra & Mahindra Ltd., India’s largest maker of tractors, advanced for the second day. Tata Motors Ltd., the owner of Jaguar Land Rover, fell to a one-month low.

The S&P BSE Sensex rose 0.7% to 25,822.99 at the close in Mumbai on Wednesday, erasing an earlier decline of as much as 1%. The CNX Nifty Index gained 0.4% to 7,845.95. The market tends to be volatile ahead of the expiry of the derivatives contract on the last Thursday of every month, according to IIFL Wealth Management Ltd.

Stocks rose in Europe, buoyed by a rebound in commodities and signs the region’s economy is expanding. US equity-index futures recovered from a drop in Asian trading fueled by the lowest reading on a gauge of Chinese manufacturing since 2009.

“The market was volatile ahead of the expiry and mixed cues from Asian and European markets," said Shishir Bajpai, a director at IIFL Wealth Management Ltd. in Mumbai, which has $12 billion under management and advisory. “Investors are focused on the next week’s policy meeting."

RBI meeting looms

Local investors are looking ahead to see whether the Reserve Bank of India will lower interest rates on 29 September to bolster the economy and spur a recovery in company earnings. Governor Raghuram Rajan left the main rate unchanged at 7.25% in August after three cuts in 2015 to meet his inflation target of 6% by January. Official data have shown that consumer price gains slowed to 3.66% last month as oil fell below $50 a barrel and food costs dropped.

Emerging-market stocks have slumped as investors weighed the timing of an increase in the near-zero borrowing costs by the US Federal Reserve that have supported demand for riskier assets. The MSCI Emerging Markets Index has declined 17% this year and trades at 10.5 times projected 12-month earnings, a 30% discount to the MSCI World Index, data compiled by Bloomberg show.

Lupin rose 2.7% to its highest since 31 August. Vedanta climbed 2.9%, paring this year’s loss to 56%. ICICI Bank added 1%. HDFC Bank climbed 1.8%. State Bank of India rose 0.8%.

Mahindra & Mahindra increased 1.8%. ITC Ltd. added 1.3%. Tata Motors slid 1.7%, extending Tuesday’s 4.8% plunge.

Overseas funds bought a net $68 million of stocks on Monday, 21 September, extending this year’s inflow to $4.2 billion, the most among eight Asian markets tracked by Bloomberg. Foreigners pulled $2.6 billion from Indian equities last month, the most since October 2008, as demand cooled for riskier assets.

The Sensex has declined 6.1% this year and trades at 14.7 times projected 12-month earnings. The MSCI Emerging Markets Index is valued at a multiple of 10.5. Bloomberg