Sensex close 1% higher on RBI’s unchanged rates

The banking sector index gained 1.9% as the Reserve Bank of India (RBI) left interest rates on hold after six increases since March but warned inflation was still above its comfort level, and unveiled steps to address persistently tight liquidity.

Outsourcers led the gains, with software firms Tata Consultancy Services (TCS) and Infosys scaling record highs.

“The large deal renewal pipeline could be the next volume growth driver for Indian offshore players, in our view," Standard Chartered said in a note, and started coverage of Infosys and Wipro at “outperform" and TCS with an “in-line" rating.

“We also see realization growth picking up, though at a modest pace, and a normalised manpower-cost structure with recalibrated hiring mix, falling attrition and absolute bench management."

TCS rose as much as 3.8% to a record high of ₹ 1,143.40, before closing up 3.6%, while Infosys gained as much as 2.9% to an all-time high of ₹ 3,296.95 and closed up 2.8%.

The 30-share BSE index gained 217.08 points and closed at 19,864.85 points, taking the gains for the week to 1.8%. Twenty one of its components advanced.

Volume was low with around 303 million shares changing hands on the BSE, while gainers beat losers in a ratio of 1.1 to 1.

“RBI’s policy was more or less in line with expectations and the provision for liquidity window was a clear positive," said Shashank Khade, executive vice president of portfolio management services at Kotak Securities.

“I think we have seen a nasty correction in last few weeks. There should be room for upside from here as market now starts concentrating on earnings growth going ahead," Khade said, adding that he expects Sensex to touch 25,000 by the end of 2011. “Any positive surprises on quarterly results front, should lead to a rally in the market."

Foreign funds have invested a net $28.4 billion in Indian equities, including primary market offerings for the year to date. The main index is up 13.7% so far in 2010.

This adds to a record $17.5 billion invested in 2009, which had led to a stellar 81% rally for the main index during the period.

Leading lenders State Bank of India, ICICI Bank and HDFC Bank gained between 1.8% and 2.4%.

SKS Microfinance skid 8.2%, hurt by a Citigroup downgrade and as television channel ET Now reported India’s Andhra Pradesh state passed a law to regulate microfinance interest rates.

Several industry sources, however, said they were unaware of any state law to regulate the interest rates.

Hero Honda Motor raced 3.5% after television channels reported its board has approved the termination of its joint venture agreement with Japan’s Honda Motor.

After the stock market shut, Hero Group said it would buy the Japanese automaker’s entire 26% stake in the joint venture.

Vehicles maker Tata Motors rose 2.1% after it said it will raise prices of its vehicles in India from next month due to higher input costs.

The 50-share NSE index closed nearly 1% higher at ₹ 5,948.75.

At 1029 GMT, MSCI’s all-country world stock index was down 0.2% while the more volatile emerging markets index shed 0.6%.

Indian markets are shut on Friday for a public holiday.

STOCKS

Sugar producers rose reacting to the farm minister’s announcement on Wednesday that India will allow exports of 500,000 tonnes of sugar.

Shree Renuka Sugars, Balrampur Chini and Bajaj Hindusthan gained between 2.2% and nearly 5%.

State-run Oil & Natural Gas Corp rose 0.6% to ₹ 1,329.10 as the oil and gas explorer approved a bonus share issue and stock split.

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