The BSE Sensex rallied 3.2 per cent on Monday to their highest close in two months as rate cuts and an economic package to boost faltering economic growth drove financials,cement and autos higher.
Sentiment was also lifted after markets across the world climbed as low prices and hopes for a global economic recovery later this year prompted a shift into riskier assets.
After markets had closed on Friday,the Reserve Bank slashed short-term interest rates by 1 per centage point and the government unveiled plans to increase foreign inflow of funds.
“We believe the measures to enhance credit availability and the measures to boost infrastructure are relatively stronger measures,” analyst Manishi Raychaudhuri at BNP Paribas said in a report.
Energy group Reliance Industries jumped 6.4 per cent to 1,365.75 rupees,its biggest single-day per centage rise in nearly three months,after oil prices climbed 3 per cent amid rising tension in the Middle East.
Higher oil prices would lift Reliance’s refining margins and the economy boosting measures by the government could raise demand for fuel and petrochemicals,traders said.
Construction,cement,financials and auto firms rose on hopes the rate cut and federal government moves to draw more funds into the country will boost demand.
The 30-share benchmark index rose 3.19 per cent,or 317.38 points,to 10,275.60,its highest close since Nov. 10.
Twenty-three of its components rose. The benchmark had risen 6.7 per cent last week in anticipation of the rate cuts.
“We believe that the fiscal measures … and increasing public spending will likely be most effective in the current environment of risk aversion,where the private sector leveraging is unlikely to pick up,” Morgan Stanley said.
No. 2 lender ICICI Bank rose 6 per cent to 499.65 rupees,its highest close in more than three months,while top lender State Bank of India gained 2.4 per cent to 1,361.20 as investors expected banks to gain from higher bond prices as interest rates soften.
“While we welcome these counter-cyclical measures as a timely boost to confidence,we do not think that they will materially change the growth outlook,” Goldman Sachs said in a report.
It continued to expect Indian economic growth to slow to 6.7 per cent in FY09 and 5.8 per cent in FY10.
Jayesh Shroff,a fund manager at SBI Mutual Funds,said shares prices had factored in dismal quarterly earnings due this month after the BSE index slumped more than half in 2008 in its worst performance ever.
Still,there could be negative surprises,he said.
Earnings of the top-30 BSE index companies are expected to drop 0.2 per cent on year,compared with a growth of 5.5 per cent in the September quarter,Morgan Stanley said in a research note.
It would be the first year-on-year dip in quarterly earnings for the benchmark index since 1999,it said.
The earnings parade will be kicked off by private sector lender Axis Bank on Friday,followed by IT bellwether Infosys Technologies on Jan. 13.
Embattled Satyam Computer Services fell 6 per cent to 166.90 rupees on concerns that corporate governance issues could hit new business.
Traders said wary investors were also paring positions after the stock rose more than 50 per cent from its lows on Dec. 24.
In the broader market 1,686 gainers led 866 losers on heavy volume of 391 million shares.
The 50-share NSE index was up 2.5 per cent at 3,121.45.