Home / Market / Stock-market-news /  Sensex closes up 19 points as inflation data spurs rate-cut optimism

Mumbai: Indian stocks climbed for the first time in three days, led by gains in mid- and small-sized companies, after a more-than-estimated easing in the nation’s main inflation rate revived calls for an interest-rate cut.

The BSE 100 Index rose 0.4%, while the S&P BSE Sensex added less than 0.1% after changing direction at least 12 times. The gauges fell the most in almost three months on Monday as global equities slumped amid concern that central banks are preparing to wean markets off unprecedented stimulus.

India’s consumer prices increased 5.05 % in August from a year earlier, official data showed after trading ended on Monday. That’s slower than the 5.2% median estimate in a Bloomberg survey and less than the previous month’s 6.07% rate. The markets were closed on Tuesday for a public holiday.

“The drop in consumer-price inflation increases the probability of a rate cut, and if the Fed doesn’t raise rates at its next meeting, stocks will rebound sharply," Arjun Prajapati, vice president at Asit C. Mehta Investment Interrmediates Ltd. in Mumbai, said by phone.

A softening in some of Asia’s strongest inflation would allow newly appointed Reserve Bank of India Governor Urjit Patel room to retain his predecessor Raghuram Rajan’s “accommodative" monetary stance to stimulate investment. At his last review 9 August, Rajan left the key repurchase rate unchanged at a five-year low of 6.5% and flagged upward risks to the central bank’s CPI target of 5% by March 2017. The next policy meeting is on 4 October.

The Sensex has retreated 2.3% after reaching an 18-month high on Thursday amid a rout in financial markets that’s wiped some $2 trillion off the value of global equities over the past week. Volatility soared after a report showed fund managers are hoarding more money in cash amid uncertainty over the trajectory of central bank stimulus globally.

While overseas investors have pulled $140 million from local shares in the past two trading sessions, paring this year’s inflow to $6.3 billion, domestic investors are using the declines to buy stocks, according to Sundaram Asset Management Co.

“Inflows into mutual funds is very strong," Sunil Subramaniam, chief executive officer at Sundaram Asset, which oversees $3.6 billion, said in an interview in Mumbai. “Every fall is being bought into aggressively."

Investors pumped Rs6,500 crore into equity funds in August, according to data from the Association of Mutual Funds in India. That’s more than double the Rs2,500 crore stock funds attracted in July, the data show.

The Sensex is valued at 16.2 times projected 12-month profits compared with 12.3 times for the MSCI Emerging Markets Index. Bloomberg

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