Indian stocks climbed for the first time in five days as a selloff in Asia eased and investors speculated that foreign buying of the nation’s shares will accelerate after China’s domestic equities were denied entry into MSCI Inc’s benchmark indexes.
State Bank of India rallied the most on the S&P BSE Sensex after reports the government has approved the merger of five of its associate banks with the lender. Bharti Airtel, India’s largest mobile-phone operator, gained the most in two weeks after Bank of America Corp upgraded the stock to buy from neutral. Carriers SpiceJet and InterGlobe Aviation advanced after the government approved a new aviation policy.
The S&P BSE Sensex jumped 1.3%, the most since May 26, to 26,726.34 at the close in Mumbai, ending a four-day, 2.3% decline, as Asian and European shares rebounded before the Federal Reserve’s policy review. 
India will benefit from the non-inclusion of Chinese domestic shares by the MSCI, whose emerging-market index is tracked by investors with $1.5tn in assets, according to Arihant Capital.
“The majority of funds for emerging markets are allocated to India and China and non-inclusion of China in the MSCI indexes will help India get a higher share of the EM allocation,” Anita Gandhi, a director at Arihant Capital in Mumbai, said by phone. Foreign investors sold $14mn more Indian shares than they bought on June 14, snapping 14 days of net inflows, data compiled by Bloomberg show. Overseas investors have added $664mn to their holdings this month.
Stocks also gained amid optimism Prime Minister Narendra Modi is getting closer to securing the votes needed to pass one of India’s biggest economic reforms in decades. Finance Minister Arun Jaitley said on Tuesday Modi’s government would again seek to pass a constitutional amendment authorising the goods-and- services tax, known as GST, in the parliamentary session starting next month.
Gati rose 1.1%, taking this month’s rally to 19%. Transport Corp of India climbed 1.3%. Aegis Logistics added 2.1% and IL&FS Transportation Networks jumped 4.6% to its highest price since April 25.
“The news on GST is very positive as it will boost productivity and has the potential to add as much as 1 percentage point to the economic growth,” Kishor Ostwal, managing director at CNI Research, an equity research provider, said in Mumbai. “Investors who had gone short, were forced to cover their positions.”
State Bank of India soared 4% to its highest since January 6. State Bank of Bikaner & Jaipur and State Bank of Travancore both jumped by the 20% daily limit.
Bharti Airtel increased 2.7%, the most since June 1. The company is well placed to defend market share and has “inexpensive” valuations, Bank of America said in a report.
Meanwhile the rupee yesterday strengthened against the US dollar as foreign institutional investors (FIIs) continued to buy equity shares in the local markets. FIIs bought $1.02bn equities in the last 14 consecutive sessions.
The currency closed at 67.15, up 0.17% from its previous close of 67.27. The rupee opened at 67.23 a dollar and touched a high and a low of 67.07 and 67.25, respectively.
India’s 10-year bond yield closed at 7.517% compared with Tuesday’s close of 7.519%.
So far this year, the rupee has weakened 1.47%, while FIIs have bought $2.86bn from the local equity market and sold $1.15bn in debt markets.
Asian currencies closed higher. Indonesian rupiah was up 0.29%, China renminbi 0.24%, Malaysian ringgit 0.22%, China Offshore 0.14%, Thai Baht 0.12%. However, Japanese yen was down 0.14%, Taiwan dollar 0.06%.