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India shares advance as drug makers extend rally

Dr. Reddy's, Sun Pharma month-to-date top performers in Sensex

MUMBAI (NewsRise) -- Indian shares edged higher on Wednesday as drug makers continued to rally, helping offset caution before a near-certain rate increase by the U.S. Federal Reserve.

The BSE Sensex advanced 0.1% to 35,739.16 and the Nifty 50 climbed by a similar margin to 10,856.70. Dr. Reddy's Laboratories added 2.8%, Cipla climbed 2.5%, and Lupin rose 1.8%. Sun Pharmaceutical Industries gained 1% after saying that a critical plant in Western India had been cleared by the U.S. regulator. Tata Consultancy Services advanced 2.4% after the software exporter said it will consider a share buyback proposal on Friday.

Pharmaceutical companies extended their good run this month amid optimism that lower regulatory risks and an earnings revival will prompt a valuation rerating. Dr. Reddy's, whose plant in southern India was cleared by the U.S. regulator last week, and Sun are the top two performers on the Sensex month-to-date.

Meanwhile, it was a difficult day for other regional markets amid worries that the Fed could signal a quicker pace of monetary tightening later in the day. The U.S. central bank's comments on inflation and dot plot, which is followed closely to gauge policymakers' expectations on the likely path of interest rates, will garner maximum attention. The interest rate decision itself will have little impact as a quarter percentage point rate hike is widely expected.

Nomura expects the Fed to forecast a total of four rate hikes this year amid economic data pointing to accelerating activity, a 3.8% unemployment rate, and inflation nearing the Fed's 2% objective.

Among other movers on the BSE on Wednesday, Axis Bank rose 0.6% to 539.75 rupees after CLSA raised earnings estimates and increased its stock target price to 650 rupees, citing normalization of credit costs and higher net interest margins.

Tata Steel dropped 2.1% after Germany's newspaper Handelsblatt reported that Thyssenkrupp may renegotiate its merger with the Indian steel producer. Last September, both the companies agreed to combine their European operations to create Europe's second-largest steel player, a deal viewed positively for Tata Steel by analysts.

Bharti Airtel fell 1.3% after Reliance Industries' telecom arm offered more data to users. Shares of Reliance Industries closed 0.7% higher.

India's economic data releases of Tuesday did not have much of an impact on the day's trading. The nation's consumer prices rose 4.87% in May, in-line with the 4.83% reading

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