Mumbai: India’s main stock index climbed 2.3% on Friday, taking gains in May to 28.3% in its strongest monthly performance in 17 years, boosted by positive economic data and hopes for market-friendly reforms.
Asia’s third-largest economy grew a faster-than-expected 5.8% in the March quarter, and analysts said strength in farm and services sectors added to signs for an early recovery.
“The economy continues to have significant pent-up demand for investment, especially in infrastructure and in affordable housing,” Goldman Sachs economist Pranjul Bhandari said.
“We therefore see upside risks to our GDP growth forecast of 5.8% forecast for fiscal year 2010.”
Energy giant Reliance Industries and state-run explorer Oil and Natural Gas Corp led the surge after the oil minister said a proposal to allow firms set retail fuel prices based on market rates would be sent to cabinet within six weeks.
The 30-share BSE index rose 329.24 points to 14,625.25, with 26 stocks advancing. It was the highest close since last 10 September as it rose 5.3% on the week, extending a winning streak to 12 weeks in a row -- the best run in four years.
Its monthly rise was behind only Russia’s RTS stocks index among major indices of the world.
The benchmark has soared 82% from a 2009 low in early March, and is up 52% this year after slumping by more than half in 2008. The rebound has been powered by more than $5.5 billion ploughed in by foreign funds over the past 2 months.
Investor confidence got a boost after the ruling coalition was re-elected with more seats in parliament, raising hopes for economic reforms such as reviving asset sales in state companies and opening up sectors like insurance.
“Just the improvement in sentiment due to the formation of a stable government is having an immediate positive impact on growth as this development has opened the doors for capital market funding for India,” Morgan Stanley economist Chetan Ahya said.
“A second-stage boost can come from execution of reforms. Any quick aggressive policy response will mean upside to our forecasts,” he said.
Engineering conglomerate Larsen & Toubro and Reliance Infrastructure were among the biggest gainers in May as investors bet they would benefit as the government increases spending to improve creaking infrastructure.
The realty sector raced up 79% in May, helped by a jump of three-quarters in shares of top developer DLF Ltd.
Even though there are concerns the market may have become expensive, analysts said the mix of a stable government, the prospect of reforms such as divestments, signs of green shoots in the economy and improving corporate results will continue to attract investments from cash-flush funds.
Reliance Industries, which has the most weight in the main index, gained 2.6% on Friday to Rs2,277.50, nearly doubling its market value since early March.
L&T rose 4.8% to Rs1,405.60, a day after it reported better-than-expected results and forecast robust orders. The stock advanced 60% on the month, while rival Reliance Infrastructure rocketed up 84%.
The banking sector, which includes top lender State Bank of India and private-sector rival ICICI Bank, put on 45.3% in May on expectations of loan growth and reduced risk of defaults.
Top telecoms firm Bharti Airtel climbed 3.1% to Rs819.65, rising for a second day after falling more than 10% over three sessions following news of its merger talks with South Africa’s MTN.
In the broader market, gainers led losers by more than 3 to 1 on relatively heavy volume of 688.3 million shares.
The 50-share NSE index rose 2.6% to 4,448.95, taking its gains for the month to 28%.