A police officer stands guard in front of the Reserve Bank of India head office in Mumbai yesterday. The BSE India Sensitive Index rose 1.2% to 17,357.94 yesterday after the RBI reduced borrowing costs for the first time since 2009
Bloomberg/Mumbai

Indian stocks climbed yesterday after the nation’s central bank reduced borrowing costs for the first time since 2009 to revive growth and stocks closed little changed from the day’s high as the authority said there’s not much scope for further cuts.
The BSE India Sensitive Index, or Sensex, rose 1.2% to 17,357.94 at the 3.30 pm close, near the intraday high of 17,381.92.
“The cut was much larger than anticipated, and if banks decrease rates, it could boost demand,” Vetri Subramaniam, head of equities at Religare Asset Management Co, which has $2bn in assets, said in an interview yesterday. “Markets will have to balance this positive surprise with the central bank’s commentary that the room for future rate cuts is limited.”
Reserve Bank Governor Duvvuri Subbarao said yesterday consumer price pressures may reduce the scope for further interest-rate cuts. Government data on Monday showed inflation slowed less than estimated in March to 6.89%, a pace that is still the fastest among the biggest emerging economies.
The Sensex has risen 12% this year as foreign funds bought a net $8.9bn of domestic shares, a record for the period, amid optimism the central bank will take steps to ease monetary policy. Gross domestic product may grow 7.3% in the year through March 2013, compared with the baseline projection of 7% for the previous 12 months, the central bank estimated yesterday.
“By and large, the tone of the policy will continue to remain accommodative for spurring growth,” said Dhawal Dalal, Mumbai-based head of fixed income at DSP Blackrock Investment Managers Pvt. “The RBI may also inject the right amount of liquidity to increase money supply.” The reserve ratio may be cut by a further 100 basis points this fiscal year, he said.
Overseas investors sold a net Rs5.52bn ($106.8mn) of Indian stocks yesterday, paring their investment in the equities this year to Rs438.9bn, according to the nation’s market regulator.
Foreigners bought Rs13.4bn of shares and sold Rs18.9bn, the Securities and Exchange Board of India said on its website yesterday. Foreign funds sold a net Rs1.74bn of bonds, reducing their inflow into debt this year to Rs196.3bn, the data show. They put Rs421bn in bonds in 2011.
Foreigners have invested Rs4.883tn in stocks and Rs1.404tn in bonds since they were allowed into the country in 1993.
India’s $1.2tn stock market, Asia’s fifth-biggest, is influenced by flows from overseas. Inflows from abroad surged to a record in 2010, making the Sensex the best performer among the world’s top 10 markets.
The largest-ever outflow in 2008 led to the biggest annual slump of 52%.