Indian stocks gain as budget deficit plan spurs rate cut bets

Indian stocks rose, with the benchmark gauge reversing an intraday loss, after the government's pledge to retain a plan to narrow the budget gap spurred optimism that the central bank may lower borrowing costs.

State Bank of India and ICICI Bank Ltd., the country's biggest lenders, were among the best performers on the S&P BSE Sensex. Reliance Industries Ltd., owner of the world's largest refining complex, climbed to a three-week high. Tata Steel Ltd. rose for a third day and Mahindra & Mahindra Ltd., a tractor maker, advanced to a two-month high. The Sensex added 0.5 percent at 2:05 p.m. in Mumbai, erasing an intraday loss of 2.9 percent. The fiscal deficit will narrow as planned to 3.5 percent of gross domestic product in the year starting April 1, the smallest gap since 2008, Finance Minister Arun Jaitley told lawmakers on Monday. The move may help Prime Minister Narendra Modi win another rate cut as low global oil prices are forecast to keep inflation near next year's target.

"There's expectation that the RBI may now cut interest rates," Sampath Reddy, the chief investment officer at Bajaj Allianz Life Insurance Co., which has $6.5 billion in assets, said by phone. "The fiscal deficit is one of the most important things and it's good that the government has stuck to the target." Reddy said he remains bullish on infrastructure stocks.

Central bank Governor Raghuram Rajan last month warned of higher bond yields if Prime Minister Modi strayed from the deficit-reduction path, calling macroeconomic stability the nation's "single most important strength" in a time of global market turmoil.

The Sensex has slid 6.6 percent in February as global funds pulled $2.5 billion from domestic shares since Jan. 1 amid a wider selloff in emerging markets.