Mumbai: Indian shares snapped a two-day fall and rallied 4.1% on Tuesday to their highest close in more than seven months as investors began betting the Bharatiya Janata Party (BJP)-led group, which is seen as market friendly, would win national elections.
Traders said the market was boosted by hopes the next government would not need the support of communists, who had stalled reforms when they allied with the ruling Congress party-led coalition for most of its five-year term.
“There is speculation that the election will result in the formation of a stable government that excludes the left,” said TS Harihar, senior vice president at ICICI Securities.
The BJP-led group, which suffered a shock election defeat in 2004 and was trailing for weeks in the month-long elections, may now be gaining momentum against a fumbling ruling Congress party coalition thanks to some savvy alliance building.
Exit polls will be announced after the last round of voting ends on Wednesday and the election results are due on Saturday.
The process of coalition formation following the election results could be chaotic, Credit Suisse analyst Nilesh Jasani said in a note. “The only thing predictable in such events is the unpredictability,” he said.
The 30-share BSE index rose 4.07%, or 475.04 points, to 12,158.03, its highest close since 3 October. All but one of its components advanced, after choppy trading through the first half of the session, with the benchmark falling as much as 0.5% at one stage.
Energy giant Reliance Industries and leading lenders such as State Bank of India , ICICI Bank and HDFC Bank led the gains.
The BSE index, which had fallen more than 3.5% in the previous two sessions, has jumped 51% since hitting a 2009 low in early March and is up 26% this year after slumping 52% in 2008.
Analysts said the market would likely see more volatility when exit polls are released.
“Short-term investors will trade on the exit polls. Those with a longer-term view will wait for the actual results to come out,” Anand Shah, head of equities at Canara Robeco Mutual Fund, said.
Traders said investors shrugged off weak economic data.
Industrial output fell at its steepest annual pace in at least 14 years in March, leaving the door open for further interest rate cuts by the central bank.
Factory output in March fell 2.3% from a year earlier, the third fall in the past four months and much sharper than market expectations of a 0.5% decline.
Analysts said the economy was still set for recovery from late 2009.
“We still believe the economy is set for a rebound in the second half of the 2009-10 fiscal year due to fundamental reasons such as fiscal stimulus packages, monetary actions, extra oil and gas output later this year and falling commodity prices and robust domestic demand, ” said Robert Prior-Wandesforde, Senior Asian Economist at HSBC in Singapore.
Reliance Industries, which has the biggest weight in the main index, rose 5.3% to Rs1,958.30, its best close in almost 7 months.
Private-sector lender ICICI Bank gained 6.7% to Rs558.65, while rival HDFC Bank climbed 3.9% to Rs1,189.70. Government-run State Bank of India advanced 2.8% to Rs1,295.45.
No. 2 outsourcer Infosys rose 5.5% to Rs1,597.95. In the broader section, gainers led losers 1,410 to 1,106 on relatively moderate volume of 423 million shares.
The 50-share NSE index rose 3.6% to 3,681.10.
Indian shares seesawed on Tuesday as worries about a split verdict when general election results are announced on 16 May dented investor confidence.
The possibility of a potentially unstable coalition of regional parties coming to power if neither the ruling Congress party coalition or the main opposition Bharatiya Janata Party-led group win a clear majority kept investors wary.
Engineering and construction firm Larsen & Toubro and Tata Steel fell on profit-taking, while outsourcer Infosys Technologies and private-sector lenders ICICI Bank and HDFC Bank rose.
By 11:05 am, the 30-share BSE index was up 0.4% at 11,735,21 points, with advancers and losers evenly matched, after falling as much as 0.5%.
“This is a typical move before the election results are announced, where there is buying when the market goes lower and profit booking when the market goes higher,” Deven Choksey, chief executive of KR Choksey Shares & Securities, said.
“Traders are being cautious.”
The benchmark index had fallen in the previous two sessions after rising 50% since early March. Trading is expected to be choppy through the week, till there is more clarity on the political front.
Investors are awaiting industrial output data, expected at about noon (0630 GMT), which is likely to have shrunk in March from a year earlier, its third fall in four months, as the global economic slowdown hit exports and domestic demand remained soft, a Reuters poll showed.
Larsen & Toubro shed 2.4% to Rs939.95, while Tata Steel fell 3.9% to Rs261.45.
No. 2 outsourcer Infosys rose 2.1% to Rs1,546.50. ICICI Bank climbed 0.4% to Rs525.30, while HDFC Bank advanced 1% to Rs1,156.
In the broader section, losers led gainers 1.5 to 1 on relatively light volume on 99.2 million shares.
The 50-share NSE index was up 0.4 at 3,569.15.
PTI Adds: From Asian indices, Taiwan was down by 3.36%, Singapore by 1.25%, Japan by 1.20%, South Korea by 0.69% and Hong Kong by 0.62% while China was up by 0.18 per cent in their morning trade.
The BSE Sensex fell in early deals on Tuesday, as investor confidence was weighed down by concerns national election results due on the weekend may produce a fractured mandate.
At 9:57 am, the 30-share BSE index was down 0.2% at 11,657.59 points, with 19 stocks declining.
The 50-share NSE index was down 0.3% at 3,544.55.
The market had fallen on Monday for a second day after rising 50% since early March.
Investors are worried neither the ruling Congress party coalition or the main opposition Bharatiya Janata Party-led group will win a clear majority, leaving the possibility of a loose coalition of regional parties.