Mumbai: India’s benchmark stock index advanced to a two-week high after factory output and inflation data signaled an improving outlook for Asia’s third-biggest economy.

Tata Steel Ltd climbed to a one-month high after the Press Trust of India reported that the board of safeguards has upheld a plan to levy an import duty on some steel products. Vedanta Ltd, the largest copper producer, and NTPC Ltd, the top power generator, were the best performers on the S&P BSE Sensex. State Bank of India and Axis Bank Ltd paced gains among lenders as a drop in the inflation rate improved odds for a rate cut by the central bank.

The Sensex surged 1% to 25,856.70 at the close, extending last week’s 1.6% increase. The first of the country’s two main inflation gauges due Monday showed a deepening price decline, while industrial output in July expanded faster than expected, data showed Friday. The Federal Open Market Committee will meet this week to decide on US interest rates.

“The wholesale price inflation has reconfirmed to the street that consumer price inflation would be lower than expected," Aneesh Srivastava, the chief investment officer at IDBI Federal Life Insurance Co., said by phone from Mumbai. Some traders also closed bearish bets before the Fed meeting, adding to the rally, he said.

Wholesale prices declined 4.95% in August from a year earlier after falling 4.05% in July. The median of 32 economists in a Bloomberg survey had predicted a 4.4% drop. Consumer-price inflation probably eased to 3.58% in August from 3.78% in July, according to a Bloomberg survey of 30 economists. The data is due later on Monday.

Rate decisions

The Federal Open Market Committee will meet this week to decide whether to raise borrowing costs for the first time since 2006, with traders holding odds of an increase at 28%. Reserve Bank of India governor Raghuram Rajan has resisted growing pressure from the government to ease monetary policy amid cooling inflation, leaving rates unchanged in August. His next policy review is scheduled on 29 September.

Tata Steel surged 3.8%, paring this year’s loss to 39%. Steel Authority of India Ltd increased 2% and JSW Steel Ltd jumped 3.1%. The Board of Safeguards has approved the recommendation of the Directorate General of Safeguards for levying a 20% duty on certain steel products to protect the interests of the domestic industry, PTI said, citing an official it didn’t identify. Indian steelmakers had complained of a surge in imports from China, South Korea, Japan and Russia, the report said.

Vedanta increased 4.4% to its highest since 19 August. NTPC jumped 5.2% to a three-week high. State Bank gained 2.2%, while Axis Bank advanced 3.1%.

The India VIX index, the benchmark measure of equity-option prices, fell 2.6%. The 50-stock CNX Nifty Index rose 1.1% to 7,872.25.

International investors sold a net $5.6 million of Indian stocks on 10 September, paring this year’s inflows to $3.6 billion. The Sensex trades at 14.7 times projected 12-month earnings, compared with a multiple of 10.7 for the MSCI Emerging Markets Index. Bloomberg

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