MUMBAI – Indian shares rallied for a third consecutive session to their highest close in nearly three weeks Monday due to short-covering ahead of the expiry of the June derivative contracts later this week, and supported by a further fall in crude oil prices.
Gainers were led by state-owned oil firms after the government late Friday raised diesel and cooking-fuel prices, removed the import tax on crude oil and reduced the import tax on all fuel products.
The Bombay Stock Exchange's Sensitive Index rose 171.73 points, or 0.9%, to close at 18,412.4--its highest close since June 7. On the National Stock Exchange, the 50-stock S&P CNX Nifty rose 55.35 points, or 1.0%, to end at 5,526.60.
Trading volume on the BSE fell to 25.55 billion rupees ($569.3 million) from Friday's 28.17 billion rupees. Gainers outnumbered decliners 1,636 to 1,193, while 116 stocks were unchanged.
Investor sentiment remained buoyant due to a further correction in Brent crude prices, which have fallen almost 7% over the past one week, said dealers.
The Sensex's 4.9% gain over the past three sessions has helped pare its losses in 2011 till date to 10.2%, but analysts doubt whether the advance will continue.
"The rally has been too sharp and sudden and we could see a correction if there is no follow-up buying after the short-covering finishes," said Ambareesh Baliga, chief operating officer at Way2Wealth Securities.
He added that the positive effect of falling crude prices could be offset by the latest round of local fuel price hikes, which are expected to increase inflationary pressures.
Taking the latest round of price increases into account, inflation is expected to remain in excess of 10% until November and moderate only modestly thereafter to around 8.0% by the end of March 2012, Kotak Mahindra Bank said in a research note Monday.
Of the 30 Sensex constituents, 23 ended higher Monday.
Oil & Natural Gas Corp. rose on expectations the state-run oil and gas explorer will have to give smaller discounts to fuel retailers to share their losses following the fuel price increases. The stock closed 4.2% higher at 284.15 rupees after having touched a one-month high of 297.40 rupees.
Credit Suisse estimates the price hike will increase fuel-retailers' sales by 240 billion rupees, while the tax cuts will help reduce subsidy losses by an additional 250 billion rupees.
Fuel retailers Hindustan Petroleum gained 5.8% to 415.25 rupees and Bharat Petroleum added 4.6% to close at 663.70 rupees. Neither company is part of the Sensex.
Among Sensex winners, banks extended Friday's gains with ICICI Bank rising 1.2% to 1,078.25 rupees and HDFC Bank adding 1.5% to close at 2,416.30 rupees.
Engineering firm Larsen & Toubro rose 2.7% to 1,785.70 rupees, extending the previous session's 4.3% advance after the company announced new orders worth 16.10 billion rupees Friday.
In autos, Mahindra & Mahindra gained 3.1% to 693 rupees and Maruti Suzuki, India's largest car maker by sales, rose 2.9% to 1,153.35 rupees.
Among the few Sensex losers, Reliance Infrastructure slipped 1.5% to 522.60 rupees and ITC shed 0.8% to 193.55 rupees.
