Mumbai: Shares overcame choppy early trade and notched gains for a third day on Tuesday, after inflation eased as expected and reinforced hopes for steady interest rates when the central bank reviews policy this week.
Volume was, however, relatively light underlining investor caution ahead of the year end when foreign funds lock in gains.
Lenders such as market leader State Bank of India and rival ICICI Bank were among those that climbed after the wholesale price index rose an annual 7.48% in November -- the lowest rise in a year.
“The headline number is in line with expectation and reaffirms that RBI will adopt a wait and watch stance on 16 December,” said Anubhuti Sahay, economist at Standard Chartered Bank in Mumbai, referring to the Reserve Bank of India.
Top motorcycle maker Hero Honda bucked the trend and skidded 3.3% on concerns royalty payments to the firm’s Japanese collaborator may rise sharply.
The Economic Times reported on Tuesday the founder of Hero Group, the Munjal family, is set to buy Honda Motor’s 26% stake in joint venture for about $1 billion -- or half the current market value.
Traders said any deal struck at a deep discount ran the risk of a possible hefty increase in royalty payments as Hero Honda would continue to use the Japanese company’s technology even after the break up of the joint venture.
The 30-share BSE index ended up 0.55% or 107.41 points at 19,799.19, with 19 of its components rising. The 50-share NSE index firmed 0.6% to 5,944.10.
Market breadth was positive with two shares advancing for every one that declined, but volume was relatively low at 286 million shares on the BSE, compared with an average of 400 million.
The index had come within 100 points off an all-time high in early November, but had then pulled back as a series of corruption scandals dented investor confidence.
“The nervousness we saw recently was a short-term blip. The growth story holds good,” said Prasanth Prabhakaran, president of retail broking at IIFL, who expects the Sensex to rise by around 20% in 2011.
“If all goes good, our economy can even grow by 9% next year.”
India’s economy expanded by annual 8.9% for the second consecutive quarter in the three months ended September, and government officials have said growth could be faster in the remaining quarters to March.
The benchmark index is up 13.4% in 2010, driven by foreign fund investment of $28.5 billion.
In comparison, China’s Shanghai Composite Index is down 10.7% in 2010, and is one of the key underperformers in the emerging markets.
Optimistic base metal price outlook drove metal producers higher. Tata Steel, the world’s seventh-largest steelmaker, rose 2.3%.
Non-ferrous metals producer Sterlite Industries and aluminium maker Hindalco climbed 1.4% and 3.5% respectively.
Energy giant Reliance Industries rose 1%, catching up with the rally in the broader market, after underperforming so far this year.
The stock, which has the highest weighting on the Sensex, is still down 3.4% in 2010.
By 9:07am, MSCI world equity index and the Thomson Reuters global stock index were up 0.2% and 0.5% respectively.
Oil and Natural Gas Corp rose 0.3% to Rs 1,332.05 after an oil ministry official said on Monday the state-run explorer was in talks with Russia’s Bashneft to help the oil firm develop the giant Arctic Trebs and Titov oil fields.
Kalpataru Power Transmission firmed 1.9% to Rs 175.90 after the company, which makes transmission line towers and steel structures, said it won orders worth Rs600 crore.