Mumbai: Shares climbed 3.5% on Tuesday, their biggest single-day rise in 21 months, as investors bet a strong growth outlook for Asia’s third-largest economy and measures proposed in the budget would attract foreign inflows.
Financial stocks led gains as worries of higher interest rates eased after a lower-than-expected government borrowing plan, while automobile stocks rose as sales at top automakers continued to gain ground.
“There were several positive signals in the budget in terms of economic growth, tackling inflation and opening up to foreign investors,” said said K.K. Mital, head of portfolio management services at Globe Capital.
“The mood of investors seems to have changed and we are seeing a pullback in sectors that were beaten down in the past few weeks.”
India’s manufacturing sector expanded at its fastest clip in three months in February as more new orders poured in, but input prices rose at a record pace, a survey released on Tuesday showed.
Finance Minister Pranab Mukherjee said on Monday he expected inflation would ease and India’s economy would grow around 9% in fiscal 2011/12 beginning April, up from an 8.6% growth expected in the current fiscal year.
On Tuesday, the 30-share BSE index closed up 623.10 points at 18,446.50 points, with all of its components advancing. The 50-share NSE index rose 3.5% to 5,522.30, its biggest single day gain since May 27, 2009.
The benchmark is down 10% so far this year, with foreign funds pulling out $2.2 billion following a spate of political corruption scandals, and high inflation and rising borrowing costs denting the pace of growth.
The economy grew a slower-than-expected 8.2% in the December quarter from a year earlier, government data on Monday showed.
Despite absence of key reforms in the annual budget, there was optimism as the finance minister raised the foreign investment limit in corporate infrastructure bonds by $20 billion, and announced new infrastructure debt funds.
On Tuesday, financial stocks rose as investors set aside worries of further interest rate hikes. Largest lender State Bank of India rose 2.9%, while private sector peers ICICI Bank and HDFC Bank gained 5.7% and 4.2%, respectively.
Auto makers bolstered the momentum after reporting double-digit growth in February sales.
Leading car maker Maruti Suzuki rose 7.1%, Tata Motors gained 5.4%, while utility vehicle and tractor maker Mahindra & Mahindra added 8.4%.
Software firms shrugged off the government’s decision to tax units in special economic zones, as data on Monday painted a bullish picture of the manufacturing sector in the United States, which technology firms count as a key market.
Top firm Tata Consultancy Services Ltd rose 1.1%, No. 2 Infosys Technologies was up 2.8%, while third-ranked Wipro gained 1.2%.
Cigarette maker ITC Ltd, which notched its biggest gain in more than one-and-a-half years with an 8.2% rise on Monday after the budget spared tobacco makers from an increase in taxes, rose a further 2.7% on Tuesday.
In the broader market, gainers led decliners in the ratio of 2.8 to 1 on moderate volume of 262 million shares.
Five star chain operator Hotel Leelaventure Ltd rose 9% to Rs 39.55 after a top official said it plans to raise about 9.5 billion rupees by developing residential projects.
TVS Motor Co rose 11% to Rs 56.35 after the No. 3 motorcycle maker said its total sales in February rose 24% over last year to 177,412 units.
Software services firm Spanco rose 5.3% to Rs 148.90 after its board approved raising up to 5 billion rupees through an equity offer.