Mumbai: Indian shares rose 1.5% on Monday to their highest close in almost nine months, as manufacturing activity in Asia’s third-largest economy expanded for a second month in May on the back of a revival in domestic demand.
China’s manufacturing sector also expanded moderately in May, while a severe euro zone factory recession eased during the month, boosting investor confidence across markets in Asia and Europe.
Top mortgage firm Housing Development Finance Corp and outsourcer Infosys Technologies led the gains. NTPC Ltd also rose after the leading power producer said on Friday it aimed to invest Rs550 billion ($12 billion) in the next three years to add 24,000 megawatts of generation capacity.
However, profit takers targeted lenders such as ICICI Bank and HDFC Bank, after the banking sector more than doubled in value from early March.
The 30-share BSE index climbed 1.47%, or 215.38 points, to 14,840.63, its highest close since 9 September last year. It rose 1.9% in early trade before trimming the gain.
The benchmark had soared 28.3% in May - its strongest monthly performance in 17 years, boosted by positive economic data and hopes for market-friendly reforms after the ruling coalition won a second term in office.
This has helped the index swell gains to 84.4% from a 2009 low in early March. It is up 54% since the start of the year after plunging by more than half in 2008.
“I would not say the Indian market is expensive at the moment. It can go up even further based on good prospects for growth as the government introduces its policies,” said Dinesh Thakkar, chairman and managing director at Angel Broking.
A survey showed manufacturing activity expanded for a second straight month in May to its highest level in eight months, reflecting a revival in domestic demand, but weak exports are likely to remain a drag on the economy.
Hefty interest rate cuts by the central bank and government stimulus packages have boosted optimism in recent months that a rebound in domestic consumption will pull the economy out of its slowdown faster than economists had expected.
The survey numbers came after data on Friday showed India’s economy expanded faster than expected in the March quarter, boosted by strength in the farm and services sector.
Macquarie Research said it had raised its growth forecast for India to 7% for 2009-10 and to 7.5% in the following year after the Friday data.
The ruling coalition is widely expected to push reforms such as asset sales in state-run firms, oil price deregulation and relax foreign investment rules in the insurance and pension sectors.
The market largely shrugged off news General Motors will file for bankruptcy on Monday, forcing the 100-year-old automaker once seen as a symbol of American economic might and dynamism into a new and uncertain era of government ownership.
Twenty-four of the main index’s components rose, while in the broader section, gainers led losers by more than 4 to 1 on relatively heavy volume of 695.1 million shares.
Traders said foreign funds, which have pumped about $6 billion into shares in the past 2-“ months, will continue to be the main drivers of the market.
“Foreign funds will continue to pour money into emerging markets, especially India because I think the market deserves to be re-rated after a stable government has come to power,” Thakkar said.
HDFC rose 5.2% to Rs2,298.55, while no. 2 IT-services firm Infosys advanced 4.7% to Rs1,676.85.
NTPC climbed 6.2% to Rs228.75.
Cairn India jumped 12.8% to Rs261 after Goldman Sachs raised its 12-month target price to Rs290 from 240, saying the energy explorer was set to produce oil from its Rajasthan fields within the next few weeks.
Private-sector lender ICICI Bank eased 2.4% to Rs723.20, while rival HDFC Bank fell 0.7% to Rs1,433.
Top telecoms firm Bharti Airtel dropped 1.7% to Rs805.95 on lingering concerns its proposed deal to merge with South Africa’s MTN may prove expensive for Bharti and dilute its earnings per share initially.
MTN’s no. 2 shareholder, Lebanon’s Mikati family, said on Friday it supported merger talks with the Indian firm and would vote in favour of a $23 billion cash and share swap.
The 50-share NSE index ended up 1.8% at 4,529.90.
Asian markets rose on Monday, with Japan’s Nikkei climbing 1.6%, while MSCI’s measure of other Asian markets gained 3.25%.
The FTSEurofirst 300% index of top European shares was up 2% by 1036 GMT (04:06 pm).