India Stocks Gain as Lower Inflation Kindles Rate Cut Hopes

(Bloomberg) -- Indian stocks rose, joining peers across Asia, as inflation in December eased to an 18-month low, increasing the odds that the central bank may reduce rates helping revive demand and lower the cost of borrowing for companies.

The S&P BSE Sensex advanced 1.3 percent to 36,318.33 at the close in Mumbai, snapping three sessions of decline and clocking its sharpest gains in a month. The broader NSE Nifty 50 Index climbed 1.4 percent.

Consumer prices rose 2.19 percent in December from a year earlier, in the third straight month of moderation, the Statistics Ministry said Monday. This is the final price print before the central bank’s Monetary Policy Committee meets next month to decide on rates. Earlier, data showed factory output rose 0.5 percent in November, sharply slower than the 8.4 percent gain in the previous month.

The Numbers

  • All 19 sub-indexes compiled by BSE Ltd. gained, led by measures of software exporters
  • Bajaj Finance Ltd. and Tata Consultancy Services Ltd. gave the biggest boosts to the benchmark index
  • Yes Bank Ltd. jumped 3.9% and was the top performer on the benchmark gauge

Strategist View

  • “Lower inflation was expected given the sharp decline in crude oil and food prices,” said Sameer Kalra, president research at Target Investing in Mumbai. “However, crude remains volatile and may lead the Reserve Bank of India to pause and look at data for another quarter before reducing rates. Though it is likely to keep an easing stance with respect to liquidity”
  • “Earnings for companies so far is showing revenue growth led by volumes even as margins are contracting. The trend is likely to persist for a couple of quarters before the companies regain pricing power and margins improve”: Kalra

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