Mumbai: India’s benchmark equity indices closed at their highest in nearly a month with the Nifty breaching the psychologically-important 7,900-mark, buoyed by firm world equities as US housing data indicated a strong recovery for the world’s largest economy.

BSE’s 30-share Sensex closed 2.28% or 575.70 points higher at 25,881.17 points, while National Stock Exchange’s 50-share Nifty closed 2.40% or 186.05 points higher at 7,934.90 points. It was the biggest gain in percentage terms for both these indices since 1 March, and the highest close since 27 April.

“There was a lot of short-covering happening today on the back of firm cues from world markets," said Deven Choksey, group managing director, KR Choksey Investment Managers Pvt. Ltd.

Earlier in the day, the Sensex rose as much as 2.34% or 592.4 points to 25897.87, a level last seen on 17 May, while the Nifty had jumped as much as 2.48%, or 192.35 points, to 7,941.20, the level last tested on 28 April.

“At the end of this earnings season, people are getting more confident of a strong recovery in earnings growth by the end of this fiscal year. Besides, we are hoping to see a good monsoon, too," added Choksey.

Not everyone was optimistic, as they felt the strong US data could mean a rate hike by US Federal Reserve in June, implying caution for riskier assets.

“From a global perspective, it is yet to be seen if this rally can be sustained. We need to see how economic growth pans out for emerging markets, and how they digest a Fed rate hike, for which expectations are rising," said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd.

NSE’s VIX or volatility index plunged 4.31% to 15.52, its lowest level since 1 January, indicating less choppy days ahead. Separately, in a note on Wednesday, Morgan Stanley raised its rating on India to “overweight" from “equalweight", citing less rich valuations and less crowded positioning, rising dividends per share leading to more attractive dividend yield, a supportive macro environment and India becoming a low-beta market within emerging markets.

“India’s macro climate is well placed with little deflation threat, favourable demographics, low overall debt, and possibility of productivity-enhancing reforms," Morgan Stanley analysts said in the note.

“Cyclically, India is coming off a prolonged slowdown with growth likely reverting to trend in the coming two years, led by infrastructure spending, consumption and foreign investments, and helped by successful reining in of inflation,’ Morgan Stanley analysts added.

Since the start of the year, foreign institutional investors (FIIs) have infused a net of nearly $2 billion in Indian markets, while domestic institutional investors (DIIs) have invested a net of 11,499.57 crore in local shares.

All the sectoral indices closed in the green. BSE Bankex and BSE Capital Goods index led the gains with 3.16% and nearly 3% rise, respectively.

Cipla Ltd was the only component of Sensex that closed lower. It fell nearly 5% after the second largest drug maker by sales, on Tuesday posted a decline of 68% in net profit for the March quarter.

Its shares touched a 21-month low earlier in the day.

Private lender ICICI Bank Ltd was the top gainer among Sensex stocks, rising 4.48%.

State-run Bharat Heavy Electricals Ltd. (BHEL) followed with a 4.34% rise.

Engineering and construction firm Larsen and Toubro Ltd was up 4.02%, ahead of its quarterly earnings announcement expected later in the day.

Tech Mahindra Ltd climbed 10.29% after the country’s fifth largest software services exporter, said fiscal fourth-quarter revenue in dollar terms rose 0.8% from the quarter ended March, and reported a 16.8% jump in its quarterly net profit.

Bajaj Auto Ltd raced nearly 4% after the country’s largest exporter of motorcycles said its net profit for the March quarter rose 29%, compared with a year ago, on strong domestic sales of motorcycles and three wheelers.

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