Mumbai: Markets ended a three-day losing streak and gained 1.5% on Wednesday, led by export-driven technology stocks on hopes a weaker rupee would boost margins, and helped by expectations the central bank was near the end of its rate hike cycle.
But analysts warned the gains were unlikely to be sustained in the near term on unrelenting worries about the eurozone debt crisis and the impact of the domestic rate hikes on profits of local companies.
Shares in software services companies Infosys and Wipro were among the biggest gainers.
Larsen & Toubro fell 1.6% to 1,608.65rupees after Citi said in a report the top infrastructure firm might not come close to the upper end of its order inflow outlook of 15 to 20% this fiscal year on macroeconomic headwinds.
The main 30-share BSE index ended up 1.47%, or 242.16 points, at 16,709.60, with all but six components in the positive territory. The index had fallen as much as 0.5% earlier in the day.
“We believe interest rates are closer to peaking out and since markets tend to look ahead investors are now selectively picking up rate sensitive stocks like banks,” said Anshu Kapoor, private wealth head at Edelweiss Global Wealth Management.
Indian inflation climbed to its highest in more than a year as prices of food and manufactured goods surged, reinforcing the case for another rate hike despite weakening growth and a worsening global outlook.
Many analysts believe an rate increase on Friday will be the last one by the central bank before it pauses in its monetary tightening cycle.
The Reserve Bank of India has raised interest rates 11 times in 18 months, stoking worries about the impact of rising borrowing costs and slowing economic growth on the profitability and margins of companies in Asia’s third-largest economy.
Besides surging interest rates, fears of the United States slipping back into recession and euro zone debt crisis, which have seen Greece, Ireland and Portugal forced to take bailouts, have roiled Indian shares in recent weeks.
“Overall, the market continues to be in a bearish trend and there are significant headwinds. In a bearish market, you should not read too much into a pullback by 3 to 5%,” Kapoor of Edelweiss said.
The BSE index, which dropped more than 4% in the last three trading sessions, is down 18.5% so far this year making it one of the worst performing global equities markets.
“The market will remain subdued in the near term with corporate earnings season next month expected to throw more negative surprises than positive surprises due to domestic and global headwinds,” said Jagannadham Thunuguntla, research head at SMC Capital.
European shares rose on Wednesday after the head of the European Commission said it would soon present options for the introduction of euro area bonds, offering a glimmer of hope for an easing of the sovereign debt crisis.
Infosys, India’s No. 2 software exporter, led the gains and ended 5.8% higher at Rs 2,351.65, its highest closing level in nearly four weeks, after the rupee hit a near-two-year low of 48.02 per dollar.
Software services companies get more than half their revenue from the United States and a weaker rupees helps their profit margins.
Tata Consultancy Services , the software sector leader, rose 2.2% to Rs 1,015.10 and No. 3 exporter Wipro Ltd closed with a gain of 4% at Rs 342.40.
Wipro aims to maintain its operating margins at more than 20% even as U.S. and Europe markets are mired in a debt crisis, a senior executive told Reuters in an interview.
Reliance Capital rose as much as 4% to Rs 413.70 after the financial firm said it had received regulatory approval to sell 26% in its insurance business to Japan’s Nippon Life Insurance.
In the broader market, gainers were slightly ahead of losers in the ratio of 1.4:1 on heavy volume of 610 million shares.
The broader 50-share NSE index ended 1.45% higher at 5,012.55 points.
SREI Infrastructure Finance shares fell as much as 14% on Wednesday and the company said it had hired KPMG to look into allegations of financial irregularities concerning tower company Viom Networks.
They recovered losses later to end up 3.6%.
GTL ended 10.7% lower after the Bombay Stock Exchange said the company would discontinue contracts in the F&O segment of the exchange.
Oil marketing firms Indian Oil rose 1% to Rs 320.25 and Bharat Petroleum Corp gained 0.6% to Rs 660.40 after global crude prices dropped slightly pressured by a gloomy demand outlook.