Midsession: Markets extend gains to more than 3% on global rally

Midsession: Markets extend gains to more than 3% on global rally

Mumbai: Indian shares extended gains to more than 3% on Thursday afternoon, as equity markets across the world were boosted by positive comments from the US Federal Reserve about the world’s largest economy.

At 2:43pm, the 30-share BSE index was up 3.1% at 15,481.36 points, with all stocks gaining.

The 50-share NSE index was up 3% at 4,591.90.

Markets rose 2.1% on Thursday, joining a broad rally across Asia after upbeat comments from the US Federal Reserve about the world’s largest economy lifted investor confidence.

Sentiment was also boosted after finance minister Pranab Mukherjee said on Wednesday India proposes to reform its archaic tax laws, phase out exemptions, simplify rules on corporate mergers and help improve compliance.

“This is first time there has been a proposal for some aggressive tax reforms since the 1960s. The market simply loves it even though it may all come into effect only much later," said Amitabh Chakraborty, president of equities at Religare Capital Markets.

The government would try to bring in a bill in the winter session of parliament, expected to start in November, with the proposed changes. The bill has to be debated in parliament and get approved to become a law, which means it could be implemented from 2011.

Major gainers spanned sectors, with private-sector lender ICICI Bank, energy giant Reliance Industries and engineering and construction firm Larsen & Toubro pulling the main index higher.

Diversified cigarette maker ITC gained 3.1% to Rs234.30, while outsourcer Infosys Technologies climbed 1.1% to Rs2,064.15.

“Global liquidity is intact and it is strong. Overall momentum has also improved," Chakraborty said.

“Emerging markets like India are looking attractive again."

By 11:16am, the 30-share BSE index was up 2.1% at 15,335.85 points, with all stocks advancing. The 50-share NSE index was up 2.2% at 4,554.55.

Still, analysts warned just bullish sentiment may not be able to spur the market significantly higher, as worries that poor monsoon rains would dent economic growth and concerns about rich valuations still persist.

India’s monsoon rainfall deficit has widened further, increasing the risk of crop damage, but its impact on the country’s economy was offset by high growth in June industrial output due to buoyant consumer demand.

With just over 40% of agricultural land irrigated, farm output is heavily reliant on rains and the shortfall could potentially hurt rural demand, which accounts for more than half of India’s domestic consumption.

Economists have also cautioned the brisk rate of industrial activity might not be sustainable.

The BSE index had slid 3.25% last week on the rain concerns after jumping 16% over the previous three weeks, buoyed by a worldwide equities rally on strong corporate earnings and improving signs of a global economic recovery.

Despite concerns about rich valuations after the benchmark leapt about 87% from a 2009 low in early March and more than 55 percent this year, a rush of liquidity pouring into equity markets could support stocks in the near term as investors look to buy on dips, analysts said.

Positive sentiment on signals that the global economy is recovering would also lend further support.

On Wednesday, the US Fed made its clearest statement to date that it sees the recession nearing an end, and that shattered financial markets are healing.

ICICI Bank rose 4.1% to Rs739.25, while Larsen advanced 2.8% to Rs1,461.

Reliance Industries, India’s largest listed firm with the most weight in the main index, added 1.3% to Rs2,018.

Asian shares were higher on Thursday, with Japan’s Nikkei up 1% while MSCI’s measure of other Asian markets rose 2%.