Mumbai: Shares were on course to post their best weekly gain in nearly two months, as hopes of an end to the monetary policy tightening cycle in Asia’s third-largest economy drew investors back into equities.
Index heavyweights Reliance Industries and ICICI Bank led the rally.
The market gain was also underpinned by a global equities rally after a long-awaited plan to resolve the European debt crisis was announced, though analysts said these measures might not yet be seen as the final solution.
Shares in Infosys rose as much as 4.7% to their highest level in more than three months. Its co-chairman said in Shanghai the No. 2 software exporter was looking for acquisitions worth up to $700 million.
Other software stocks such as Tata Consultancy and Wipro were up more than 2%, after the plan to resolve the euro zone debt crisis brightened the business outlook in the sector’s second largest market.
The main 30-share BSE index was up 2.8% at 17,768.17 points by 11:11 am, after rising as much as 3.6% in early deals to its highest level since 4 August. All the index components were in the positive territory.
The BSE index, which is down about 13% so far this year, is set to post its biggest weekly percentage gain since the week ended 2 September.
“The first signal of a pause in the rate hikes that came two days back has triggered a rally in the rate-sensitive stocks. The hikes have been a concern for the markets for some time,” said Kaushik Dani, a fund manager with Peerless Mutual Fund.
“It’s too early to say though whether things will be all rosy from now on as there are still some concerns on the global macro as well as domestic fronts,” he said.
The Reserve Bank of India raised interest rates on Tuesday for the 13th and possibly final time in a tightening cycle that began in early 2010, on expectations that persistently high inflation will finally begin to ease starting in December.
However, its governor said on Wednesday that the Reserve Bank of India will only consider easing monetary policy if inflation falls below 7%.
Indian shares have been battered this year as surging inflation and interest rates dimmed the growth outlook for the economy and corporate earnings. The global economic uncertainty has also led to a flight of assets from risky assets.
Shares in financials including State Bank of India and ICICI Bank, the country’s top two lenders, rose 5.3% and 2.6%, respectively, with hopes of a pause in interest rate hikes boosting credit offtake outlook.
Citigroup said in a research note on Tuesday that it did not expect retail deposit rates or lending rates to be increased in the near term and that banks would likely absorb the impact of the latest interest rate increase on their net interest margins.
No. 3 lender HDFC Bank was trading up 2.6% at Rs484.25 and top mortgage lender Housing Development Finance Corp rose 2.6% to Rs684.55.
Energy major Reliance Industries rose 2.5% to Rs895.25 on institutional buying, dealers said. The stock is still down more than 15% this year.
Drugmaker Dr Reddy’s Laboratories rose 3.6% to Rs1,649.90 after it posted a forecast-beating quarterly profit as robust sales growth in the US offset a sluggish domestic business and higher operational costs.
The 50-share NSE index was up 2.8% to 5,348.15 points. In the broader market, gainers were ahead of losers in the ratio of 2.6:1 on total volume of about 280 million shares.
Asian stocks are also poised for their best week in nearly three years.
Stocks on the move
• Wind turbine maker Suzlon was up 3.5% at Rs38. The company on Friday announced the completion of REpower Systems AG “squeeze-out”, giving it the full ownership of the German unit.
• Shares in sugar producer EID Parry (India) Ltd were down 1.5% at Rs221.60 after the company posted a 27% drop in its consolidated second-quarter net profit from a year ago.
• Chemicals maker BASF India rose as much as 3.4% to Rs607.85 after its board approved a proposal to develop and refine yield enhancing traits in rice on behalf of BASF Plant Science Company Gmbh, Germany.