Mumbai: Indian shares raced 2.3% on Monday in their biggest one-day rise in seven weeks, after an indicator showed industrial activity picked up sharply in August and a government official said output could improve further.
Energy giant Reliance Industries Ltd led the rally in what was seen as a knee-jerk optimism to overtures for a resolution to a long winding dispute between the warring billionaire Ambani brothers, Mukesh and Anil.
Industrial output in August grew at its fastest pace in 22 months as factories produced more big-ticket household goods and cars as stimulus spending drove demand, but economists said the Reserve Bank of India (RBI) was unlikely to raise interest rates this month.
Industrial output rose 10.4% in August from a year earlier, beating the median forecast in a Reuters poll, and July’s annual growth was revised up to 7.2% from 6.8%.
Finance secretary Ashok Chawla said the data pointed to signs of recovery and the output could improve further.
Financial stocks rose on the data, with top lender State Bank of India gaining 5.2% to Rs2,172.55 and rival ICICI Bank adding 2.1% to Rs920.
The 30-share BSE index, Sensex, closed 2.31%, or 384.01 points, higher at 17,026.67 points. Twenty-seven of its components advanced.
“The speculation that Ambani brothers may settle differences and good IIP numbers contributed to today’s gains. But, I don’t think the larger picture has changed,” said R. Ganesh, director of Systematix Shares.
“The market will find it difficult to hold on to higher levels, because we are already at stretched valuations.”
The benchmark index has climbed more than 76% so far this year, powered by foreign portfolio inflows of $12.8 billion.
On Sunday, Anil Ambani said he wanted an end to the disputes with his elder brother Mukesh Ambani over the Reliance empire that was split between the brothers in 2005 after the death of their father in 2002.
Reliance Industries, controlled by Mukesh, said it welcomed the move, but added the dispute under litigation was not merely a family matter and that it hoped “any overtures for rapprochement are in no way related to the ongoing hearing of the case.”
Reliance Industries, which has the heaviest weight in the index, rose 3.2% to Rs2,167.10, while Reliance Natural Resources Ltd controlled by Anil Ambani jumped 5.3% to Rs87.40.
Reliance Power and Reliance Infrastructure led by Anil, rose 2.6% and 5% respectively.
“All stocks with the Reliance tag have gone up in a knee-jerk reaction on hopes that there can be a patch up between RIL and RNRL,” said Deven Choksey, managing director and CEO of K.R. Choksey Shares.
“But I think it’s too late for that. It’s a corporate battle now.”
IT bellwether Infosys Technologies rose 2.8% to Rs2,239.75, after it raised its full-year guidance on Friday.
“We rate the stock a buy for a 30% upside, making Infosys one of our conviction pan-India picks,” CLSA analysts Bhavtosh Vajpayee and Nimish Joshi said in a note on Sunday.
In the broader market, gainers outpaced losers in a ratio of 1.4:1 in a relatively lower volume of 401 million shares.
The 50-share NSE index closed 2.2% higher at 5,054.25.
Financial markets in Mumbai are closed on Tuesday for local state elections. Trading resumes on Wednesday.
Higher European market also helped underpin positive investor sentiment in the domestic market, dealers said.
By 1025 GMT, the FTSEurofirst 300 index of top European shares was up nearly 1%.