Mumbai: Indian shares rose 0.6% on Thursday, extending gains to a third day, on earnings optimism but trade was choppy on concerns of high valuations and further monetary tightening this year to rein in inflation.
Energy major Reliance Industries rose more than 2% ahead of its results on Friday and top lender State Bank of India jumped more than 5%, helping the market rebound from a weak start.
Analysts remained unconvinced about the strength of the market.
“There are a lot of pressure points in the system and it’s getting riskier to make money in such a market,” said Jagannadham Thunuguntla, head of equities at SMC Capitals, who expects the markets to be rangebound in coming days.
The benchmark index is valued at more than 16 times one-year forward earnings, making it one of the pricey markets in Asia, according to Thomson Reuters data.
“Whatever you call it, ‘fair-value’ or anything, we are not definitely undervalued,” Thunuguntla said. “It pays to be conservative in such a market, not aggressive.”
India’s central bank raised key policy rates by an expected quarter-point on Tuesday in the second increase in as many months, and indicated tackling inflation pressures would be its priority.
A narrow majority of analysts expect the central bank to raise rates again before its next quarterly review, a Reuters poll found, with rises totalling 100 basis points in key policy rates forecast by the end of the fiscal year.
Data on Thursday showed annual food and fuel inflation quickened in the week to 10 April, putting upside pressure on the headline inflation and the central bank to take action before its next policy review in July.
The main 30-share BSE index closed 0.58% higher at 17,573.99, with half of the components gaining. The index had fallen as much as 0.4% early, weighed down by weak Asian markets.
State Bank of India extended gains to a third day after BofA-Merrill Lynch said the leading lender would be a key beneficiary of uptick in loans, and expected the stock to re-rate “sharply” in coming months.
The stock ended 5.6% higher at Rs2,222.65.
“We think the market is over playing the negatives; and believe the stock,” BofA-Merrill Lynch, which has a “buy” rating and a 12-month price target of Rs2,575, said in a research note on Thursday.
Separately, UBS on Wednesday upgraded State Bank to “neutral” from “sell”, citing recent underperformance.
Reliance, which has the heaviest weight of about 13% on the index, gained 2% to Rs1,075.55. Analysts expect higher gas output from its fields off India’s east coast and a nascent recovery in refining margins to help profit growth.
Independent oil and gas company Atlas Energy Inc, which has a joint venture with Reliance, said on Wednesday it would buy 42,344 acres in the gas-rich Marcellus shale along with the Indian firm.
In the broader market, 1,515 gainers were slightly ahead of 1,403 losers on moderate volume of about 411 million shares.
The 50-share NSE index gained 0.47% to 5,269.35.
Most Asian stocks fell on Thursday as several major US firms issued disappointing profit outlooks, casting doubts on the strength of a global recovery, and as investors grew impatient for action on Greece’s debt crisis, which weighed on the euro.
World stocks as measured by MSCI eased with emerging market equities the same.