Mumbai: India’s benchmark stock index rose to a five-week high as metalmakers and auto companies increased amid speculation the central bank may lower interest rates as a drop in oil prices cools inflation.

Hindalco Industries Ltd, the second biggest aluminum maker, was the best performer on the S&P BSE Sensex, while Tata Steel Ltd rallied the most in about five months. Tata Motors Ltd rose to a five-week high and Mahindra and Mahindra Ltd (M&M), the nation’s largest tractor maker, climbed the most in a week.

The Sensex added 0.8% to 27,098.17, the highest close since 22 September. A 23% slide in Brent crude since June has helped cut the pace of consumer-price inflation to a three-year low, increasing room to ease monetary policy.

Ashima Goyal, an adviser to the Reserve Bank of India (RBI), said last week the central bank may consider cutting rates as early as March should lower energy costs help reduce price pressures further in a nation that imports almost 80% of its oil.

Cyclicals and interest-rate sensitives have moved up in anticipation of a rate cut," Lancelot D. Cunha, chief executive officer at ITI Wealth Management Pvt. Ltd, said in an interview with Bloomberg TV India on Wednesday. “Inflation and fiscal deficit looks under control, given oil prices are remaining soft. A rate cut is becoming a certainty, it’s only a question of timing."

Standard & Poor’s (S&P’s) raised India’s credit rating outlook in September, citing reduced inflation and a government plan to cut the budget deficit to a seven-year low. RBI has held the main rate at 8% since an increase in January.

The yield on the 8.4% sovereign notes due July 2024 was little changed on Wednesday at 8.32%, the lowest level for benchmark 10-year debt since September 2013.

The Sensex, poised for a 1.8% gain in October, has risen in all but two months in 2014 on optimism Prime Minister Narendra Modi will accelerate policy changes aimed at spurring growth. Modi ended price curbs on diesel and raised natural-gas tariffs earlier this month.

Seven of the 12 Sensex companies that have posted results so far have beaten or matched estimates. Earnings of companies on the gauge are likely to expand 23% over the next 12 months, versus 15% for companies on the MSCI Emerging Markets Index, data compiled by Bloomberg show.

“An economic cyclical recovery is underway and we are very comfortable with the earnings estimate the street has for the next couple of years of double-digit growth," Gautam Chhaochharia, the head of research at UBS Securities India Pvt. Ltd, said in a Bloomberg TV India interview on Wednesday. “The earnings momentum is definitely going to play out."

Foreigners sold a net $11.6 million of Indian stocks on 28 October, paring this year’s inflows to $13.3 billion, still the highest among eight Asian markets tracked by Bloomberg. Bloomberg

Santanu Chakraborty and Kartik Goyal in Mumbai contributed to this story.

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