MUMBAI (Reuters) – The BSE Sensex rose 3.7 percent on Thursday to its highest close in five weeks, after inflation dropped to a nine-month low and the government unveiled a bigger spending plan to stimulate the economy.
Financial stocks such as State Bank of India and ICICI Bank led the surge as inflation, which fell to below 7 percent, boosted prospects for deeper interest rate cuts in coming weeks, analysts said.
"I think the RBI will go for aggressive moves. I expect a rate cut either this month or early January," said D.K. Joshi, principal economist at rating agency CRISIL, referring to the Reserve Bank of India.
Construction and engineering companies were also in demand after the government said it was seeking extra spending of about $9 billion for the current year to March as part of a stimulus to lift economic growth and offset the impact of the global slowdown.
Larsen & Toubro, India's leading engineering and construction firm, firmed 3.5 percent to 811 rupees, while Bharat Heavy Electricals gained 6.9 percent to 1,432.55. Top listed developer DLF rose 9.6 percent to 277.40 rupees.
"There has mainly been buying from foreign funds and some rollover of short positions as derivatives expiry is only three sessions away," said R K Gupta, managing director at Taurus Mutual Fund.
The 30-share BSE index rose 361.14 points to 10,076.43, its best close since Nov. 10. It had seesawed in the morning falling nearly 1 percent as energy firms fell with oil treading water at near four-year lows.
Twenty-seven of its components rose, while in the broader market gainers led losers 1.5:1 on heavy volume of 393.3 million shares. Top lender State Bank of India rose 7.9 percent to 1,295.85 rupees, ICICI Bank gained 9.2 percent to 471.35 rupees and HDFC Bank added 5.8 percent to 1,060.35 rupees. The sector index closed 7.1 percent higher.
Satyam Computer rose 7.2 percent to 169.35 rupees after the outsourcer said its board would consider a share buyback on Dec. 29, a move that analysts said was to placate angry investors.
The stock had slumped nearly a third on Wednesday after the company, India's No. 4 software services exporter, had shocked investors with a proposal to buy two firms management had a stake in. It bowed to investor outrage and cancelled the plans just 12 hours after the deals were announced.
Shares in other software exporters rose, with investors rejigging their allocations in the beaten down sector. Tata Consultancy Services rose 6.9 percent to 510.15 rupees, Infosys Technologies firmed 3.3 percent to 1,177.55 rupees and Wipro added 2.7 percent at 249.65 rupees.
Metal shares were mostly weak on overseas cues, as Shanghai copper futures slid to five-year lows and Korea's POSCO, the world's No. 4 steelmaker, announced plans to cut production temporarily by 10 percent on tumbling demand.
Hindalco Industries ended flat at 54.30 rupees, while non-ferrous metals producer Sterlite closed 0.1 percent down at 270.90 rupees. However, Tata Steel rose
1.5 percent to 222.10 rupees.
The 50-share NSE index gained 3.6 percent to 3,060.75.
