Snapping its fall of over 2 per cent on Monday,the Sensex at the BSE bounced back strongly and rose by 490.67 points or 2.5 per cent during the day to close at a 28-month high of 20,212.96 on Wednesday.
The gains followed a favourable inflation data that raised the markets hope of another rate cut by the Reserve Bank of India.
While the Sensex witnessed its biggest intra-day gain in 11 months,the broader Nifty at the National Stock Exchange rose by 151.35 points or 2.5 per cent to close at over 28-month high of 6,146.75.
The jump in markets was even supported by the foreign institutional investors who,according to the provisional data at the BSE,pumped in a net of Rs 1,647 crore in the Indian equities on Wednesday.
Market experts say that all major indicators show that the economy is on the growth path. The WPI is at low levels,current account deficit is shrinking and oil consumption growth is coming off,so from an uncertainty perspective we know that the slowdown has bottomed out and that by itself is a big relief to the markets, said the director of equity research at a leading global financial services firm who did not wish to be named.
The inflation for the month of April came down to 4.89 per cent raising hopes for a rate cut even though RBI in its monetary policy announcement in April 2013 had said that there is limited scope for rate cut going forward.
Clearly,the rally has been partly fuelled by heightened expectations of further easing by the central bank going forward, said Sanjeev Zarbade,VP-research,Kotak Securities.
Stocks in the interest sensitive sectors witnessed a jump in their share prices. While the real estate index at the BSE rose by 4 per cent,the banking and auto indices rose by 3.95 per cent and 2.4 per cent respectively during the day.
Among the Sensex companies HDFC Ltd was the biggest gainer as its shares rose by 4.7 per cent. State Bank of India and HDFC Bank followed closely with gains of 4.1 per cent and 3.7 per cent.