Mumbai: India’s benchmark equity indices climbed on Monday, buoyed by hopes of a rate cut by the Reserve Bank of India, (RBI) coupled with an easing of India-Pakistan tensions and robust auto sales.

RBI’s newly appointed monetary policy committee (MPC), headed by new governor Urjit Patel, started a two-day monetary policy review meeting on Monday. It will announce the outcome on Tuesday.

“Some quarters in the market are expecting a rate cut tomorrow. Easing border tensions relieved investors," said Dipen Shah, head of private client group research, Kotak Securities Ltd.

The MPC is expected to maintain an accommodative policy stance as concerns over economic growth take precedence over inflation, a Mint poll of 10 economists found. Five respondents expected a policy rate cut of at least 25 basis points (bps) and the rest said the rate would be left unchanged at 6.5%. One basis point is one-hundredth of a percentage point.

BSE’s 30-share Sensex closed 1.35%, or 377.33 points, higher at 28,243.29 points while the National Stock Exchange’s 50-share Nifty climbed 1.47%, or 126.95 points, higher at 8,738.10 points.

The markets were shaken last week by the surgical strikes carried out by the Indian army on Thursday on terrorist camps in Pakistan-occupied Kashmir.

The strikes, which followed an 18 September terror attack on an army garrison in Uri in Jammu and Kashmir, triggered concerns of escalating tensions between India and Pakistan.

The national security advisors of India and Pakistan have spoken over phone and agreed to reduce tensions on the Line of Control (LoC), Pakistani Prime Minister Nawaz Sharif’s adviser on foreign affairs Sartaj Aziz said on Monday, Press Trust of India reported.

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“ The likely truce at border for now and the good auto sales are key. The huge disclosure of income through the IDS (income disclosure scheme) will also enter the system now," said Deven Choksey, group managing director, KRChoksey Investment Managers Pvt. Ltd.

“There is also some optimism ahead of the RBI policy," added Choksey.

Cumulative sales of the top 10 passenger vehicle makers rose 21% in September. Around Rs65,250 crore of unaccounted and untaxed assets were declared under the government’s voluntary income disclosure scheme that ended on 30 September.

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Factory activity in Asia’s third-largest economy expanded for the ninth straight month in September, helped by new orders and surge in buying levels. However, the rate of expansion was slower than in August, showed a survey.

The Nikkei India Manufacturing Purchasing Managers’ Index fell to 52.1 in September from 52.6 in August, indicating that growth lost some momentum. A reading above 50 indicates expansion and below 50 contraction.

For the year to date, foreign investors have bought a net of $7.5 billion of Indian shares, driving the benchmark Sensex 8.14% higher.

Still, some stocks could be too expensive.

BSE’s 30-share Sensex trades at 17.60 times one-year forward earnings, at a premium to its five-year average of 15.69 times.