Mumbai: The Sensex, India’s bellwether equity index, gained 240.26 points, or 1.5%, to close at 16,454.45 on Tuesday, doubling in value since the lows of 9 March, the fastest such surge since the early 1990s when economic liberalization and speculator Harshad Mehta boosted it to dizzy heights. Between December 1991 and April 1992, the Sensex more than doubled, from 1,900 to 4,460, before crashing.

The broader 50-stock Nifty index rose 83.50 points or 1.7% to close at 4892.10, on Tuesday. With this, it has risen 90.21% since 9 March. The Nifty came into being in April 1996.

Graphics: Sandeep Bhatnagar / Mint

After Tuesday’s rally, the Sensex has gained 101.64%, the second fastest among major emerging markets, surpassed only by Vietnam’s Ho Chi Minh index, which gained 124.6% during the same period.

The rise from 8,000 to 16,000 levels has been much faster than the drop from 16,000 to 8,000 between June 2008 and March 2009.

“Some part of the stimulus unleashed across the globe found its way into the markets and that’s why asset prices have reflated," said Sameer Kamdar, chief executive of the proposed asset management company from the ASK Group.

India cut taxes and gave incentives to the real estate and infrastructure sector amounting to 3% of economic output, a number much exceeded by other economies such as the US and China as they strove to fight the credit crunch in the wake of the collapse of the Wall Street investment bank Lehman Brothers Holdings Inc.

The economic stimulus not only brought money back into the system but also boosted hopes of an early economic recovery, which led to a revival of risk appetite among investors.

Indeed, foreign institutional investors, the largest investor category in local equities, have bought Indian stocks worth $10.7 billion (Rs52,000 crore) since March. In 2008, FIIs took out $12.87 billion from the Indian market.

Investors bought Indian stocks because “the economy was less damaged compared to other large economies," said Prateek Agarwal, head of equities at Bharti Axa Investment Managers Pvt. Ltd.

Economic growth prospects, while dimming after the credit crisis, remained better than other major economies in the world except China.

Although gross domestic product, or GDP, growth has slipped from 9%, it still hovers around 5.5-7% for the current fiscal year, according to various economist estimates. In comparison, economies such as Japan, Germany and France are just emerging from recession.

The trigger on Tuesday was higher advance tax payments by companies for the September quarter, which boosted investor sentiment and pushed the benchmark index to a 15-month high.

“The markets rose today because of good advance tax numbers," said Vinod Kumar Sharma, head of research at Anagram Stock Broking Ltd. According to numbers of some 16 companies shared by brokerages, advance tax payments improved by as much as six times for some firms compared with the previous quarter.

These numbers, mostly of banks and automobile firms, couldn’t be independently confirmed by Mint. Yes Bank Ltd, which issued a release on its advance tax payment, said that it had paid Rs58 crore or 76% more tax for the September quarter compared with a year ago.

Advance taxes are paid before the end of each quarter by the companies, based on internal profit estimates. Experts say increasing advance tax numbers indicate accelerating profits if there is no change in the tax environment.

The sharp rise in the Sensex, however, has made some fund managers cautious since valuations are rather high. The Bombay Stock Exchange’s benchmark index is now priced at 19 times estimated earnings of fiscal 2010, well above historical averages of 12-13 times. But with good advance tax numbers, investors are expecting another round of earnings upgrades which would cool down valuations and leave headroom for further gains.

Graphics by Sandeep Bhatnagar/Mint