The Bombay Stock Exchange. The Sensex climbed 1% to 29,094.93 at the close yesterday.

Bloomberg/Mumbai

Indian stocks advanced for a fourth day, capping the longest run of gains in two weeks, after inflation that came in below estimates spurred speculation the central bank will cut interest rates. Bonds and the rupee gained.
The S&P BSE Sensex climbed 1% to 29,094.93 at the close, while the yield on government bonds due July 2024 fell four basis points to 7.70%, the biggest drop in almost a month. The rupee rose 0.2% to 62.1950 a dollar, paring its decline this week to 0.8%.
Consumer prices climbed 5.11% from a year earlier, compared with the median estimate of 5.5% in a Bloomberg survey. That’s less than the Reserve Bank of India’s 6% target. Governor Raghuram Rajan cut the main repurchase rate in an unscheduled move on January 15 before holding it last week. The nation’s inflation outlook has improved as a 45% drop in Brent crude since June reduced costs for a nation that imports more than 80% of its oil requirements.
“Inflation is still within the RBI’s projected trajectory,” said NS Venkatesh, head of treasury at IDBI Bank Ltd in Mumbai. “It gives comfort that price pressures are well contained and strengthens the case for a rate cut.”
State Bank of India surged the most in nine months after quarterly net income at the nation’s largest lender climbed and its bad-loan ratio was little changed from a year earlier.
State Bank’s four largest competitors last week reported a jump in soured debt in the same quarter, sending a measure of banks to its biggest weekly loss since July. The S&P BSE Bankex climbed 1.3% yesterday in a fourth day of gains.
“People are comparing State Bank with results of other lenders, which were very bad,” Chandan Taparia, a derivatives analyst at Anand Rathi Financial Services in Mumbai, said by phone yesterday. “Since the results were not so bad, traders are covering short positions” in State Bank shares, he said.
Sun Pharmaceutical Industries, the nation’s largest drugmaker by market value, and Tata Consultancy Services and Wipro, the biggest software exporters, were among the top performers on the Sensex as some investors bought defensive shares before the government announces the federal budget later this month, according to Citrus Advisors Pvt.
“Pharma remains a better defensive bet for 2015 than a portfolio with a fairly significant allocation to cyclicals,” Sanjay Sinha, the founder of Citrus, said in an interview to Bloomberg TV India today. Drugmakers’ shares offer a “hedge against the volatility in the markets,” he said.
Mahindra & Mahindra increased the most in six months after the tractor producer’s profit of Rs9.42bn beat the Rs6.6bn median of 30 analyst estimates compiled by Bloomberg.
Earnings at 14 of the 27 Sensex companies that have posted earnings for the December quarter so far have beaten or matched estimates. Net incomes at 67% of the 30 Sensex companies exceeded or matched analyst estimates in the September quarter, versus 46% in the three months ended June and 60% in March, data compiled by Bloomberg show.
Global investors sold a net $45mn of local shares on Thursday, paring this year’s inflows to $2.4bn.
The Sensex has gained 5.8% this year and trades at 16.3 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s multiple of 11.7.