Mumbai: Indian stocks rose, with key indices ending at a record high, after the weather department forecast a near normal rainfall this year and investors anticipated an earnings revival.

The benchmark BSE Sensex gained 369.80 points, or 0.95%, to 39,275.64, while the National Stock Exchange’s Nifty index advanced 0.83% to 11,787.15 on Tuesday.

Prospects of a stable government and good monsoon are driving stocks, analysts said. Investors are also anticipating further interest rate cuts by the Reserve Bank of India (RBI) and expect consumption demand to revive after election results are announced on 23 May.

Prime Minister Narendra Modi is seeking a second term for his government in the ongoing national elections amid plunging crop prices and widespread anger among farmers. Well-distributed rainfall during the monsoon will improve crop output and income of farmers, and boost rural consumption—critical for consumer goods companies and two-wheeler makers.

“A better monsoon outlook from the Met department provided relief to investors who are also keenly watching earnings to accumulate quality stocks despite election-related volatility," said Vinod Nair, head of research, Geojit Financial Services Ltd.

The India Meteorological Department (IMD) predicted rainfall activity is likely to be 96% of the 50-year average. IMD expects weak El Niño conditions to prevail during the later part of the season but with reduced intensity. El Niño is usually unfavourable for rainfall in India. IMD’s June forecast will, however, be more critical. Private weather forecaster Skymet expects “below normal" monsoon, citing El Niño risks.

Bank of America Merrill Lynch said IMD’s monsoon forecast supports the brokerage’s call that the central bank will cut rates by 25 basis points to 5.75% on 7 June, given the dovish speech by RBI governor Shaktikanta Das at the International Monetary Fund on Friday.

“We will review the possibility of the RBI cutting again on 6 August after the Met’s second early-June rainfall forecast. We continue to see 2019 as a year of lending rate cuts favouring rate sensitives. Near normal rains also typically boost rural demand. A somewhat good crop usually arms the farmer with pricing power as he/she does not have to face either a glut, or, sell in distress to meet minimum expenses," the brokerage said in a 15 April note.

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