Indian shares surged 2.2 percent on Thursday to their best close in two weeks as investors bet on a revival in foreign fund buying after moves by six major central banks to boost cash supplies to troubled European banks. Oil and gas major Reliance Industries, No 2 lender ICICI Bank and software services bellwether Infosys, which together account for more than a quarter of the benchmark index, led the rally.
Ranbaxy Laboratories closed up 2 percent after the US Food and Drug Administration said it had given approval to the drugmaker to make the first generic version of the cholesterol-lowering drug Lipitor. The main 30-share BSE index rose 2.23 percent, or 359.99 points, to 16,483.45, its highest closed since November 16, with all but five of its components rising. The benchmark, which had slid 8.9 percent in November and is down nearly a fifth in the year to date, gained as much as 3.7 percent in opening deals and analysts said it would be difficult to sustain the rise unless foreign funds pour money in.
The 50-share NSE index ended 2.17 percent higher at 4,936.85 points. In the broader market, there were nearly two gainers for every loser on strong volume of more than 560 million shares. "The gains that we saw today sets the market up for profit-taking because the fundamentals have not changed," said Stephen Pope, managing partner at UK-based market research and consulting firm Spotlight Ideas.
"In India, there are ongoing difficulties in terms of inflationary pressure and the inability of the government to kickstart the reforms process," he said, adding the eurozone debt crisis would continue to weigh on the sentiment. Foreign funds, which are the main driver of the Indian market, are net sellers this year of $527 million of shares as of Tuesday, compared with a record investments of more than $29 billion in 2010.
Domestic headwinds such as sharp economic slowdown and uncertainty over the fate of crucial reform proposals were also formidable challenges. Macquarie said in a research report it expected the BSE index to drift towards 14,000 as corporate earnings downgrades continue and foreign fund flows stay volatile.
Shares in ICICI Bank rose nearly 7 percent to 762.15 rupees, their highest close in nearly two weeks, helped in part by a Morgan Stanley report that said the stock would rise in absolute terms over the next 15 days after the recent underperformance. The stock had dropped 23.5 percent in November, compared to a nearly 9 percent drop in the benchmark index. Reliance Industries and software services bellwether Infosys rose 2.7 percent and 1.9 percent, respectively, on institutional buying amid increase in appetite for risky assets, dealers said.
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