Indian currency notes are arranged for a photograph in New Delhi. The rupee fell 0.1% to 66.46 a dollar yesterday.

Bloomberg/Mumbai

India’s benchmark stock index rallied to a two-week high as foreign funds halted a $1bn equity sell-off and Chinese shares rallied in the last hour of trading amid a countdown to the Federal Reserve’s policy decision.
Hero MotoCorp and Bajaj Auto, the nation’s biggest two-wheeler makers, were among the best performers on the S&P BSE Sensex. Axis Bank Ltd and ICICI Bank climbed at least 1.5%. Bharti Airtel, the largest cell-phone operator, gained the most in two weeks. Sun Pharmaceutical Industries Ltd, the most valuable drugmaker, rallied to a three-week high after its unit agreed to buy US eye-care company InSite Vision.
The Sensex jumped 1% to 25,963.97, its highest close since August 31. The Shanghai Composite Index surged 4.9% as technology shares led a rebound for companies beaten down during a $5tn rout. Asian stocks rose, following US shares higher, before the Fed decides whether to raise rates for the first time in almost a decade. Odds of an increase are at 32%, down from more than 50% before China devalued the yuan.
“It’s not about what the Fed does but more about what it says,” Ridham Desai, head of India research at Morgan Stanley, said in an interview with Bloomberg TV India in Mumbai. “Given our macro stability, we want the world’s largest central bank to tell us that they think that US growth is okay, and that they’re not unduly worried about the pressure from China and that they are going to hike” borrowing costs, he said. Desai said he’s overweight on industrial companies, private lenders and technology shares.
Foreigners bought a net $20.5mn of Indian shares on September 14, the first inflow in 11 days. They’ve bought a net $3.6bn of domestic shares this year, the most among eight Asian markets tracked by Bloomberg, after Japan.
Reserve Bank of India Governor Raghuram Rajan has resisted pressure from the government to ease monetary policy, leaving rates unchanged in August. The next review is scheduled on September 29.
The Sensex has fallen 5.6% in 2015 and trades at 14.7 times projected 12-month earnings, near the cheapest level since May 2014. The MSCI Emerging Markets Index, down 14% since Jan. 1, is valued at a multiple of 10.8. Indian markets are closed on Thursday for a public holiday.
The 50-stock CNX Nifty Index jumped 0.9% to its highest close since Aug. 31. The India VIX index, a benchmark measure of equity-option costs, slumped 7.4% to 22 in a third day of losses.
Meanwhile the rupee retreated for a second day after the nation’s exports fell for a ninth month and amid investor caution before the Federal Reserve’s rate-setting meeting.
Overseas shipments shrank 21% from a year earlier in August, official data showed after markets closed Tuesday. The run of declines is the longest since 2009. Traders give a 32% chance the Fed will raise interest rates for the first time since 2006 on Thursday, a move that would reduce the appeal of assets in emerging markets such as India. Currency and bond markets in India will be shut today for a public holiday.
“The trade report isn’t supportive of the rupee,” said Sajal Gupta, head of foreign exchange and rates at Edelweiss Securities in Mumbai. “There is some nervousness ahead of the Fed meeting. People who are unhedged would like to have some protection before the event.”
The rupee fell 0.1% to 66.46 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The currency slumped 3.5% in August, the biggest drop in two years.