Indian shares rose the most in 3.6 months and scaled new 32-month high on Monday, as investors cheered robust July factory output, with strong world markets also boosting sentiment. Financials topped the gainers with top lender State Bank of India and HDFC Bank hitting an all-time high in expectations demand for loans would rise on the back of strong economic growth in Asia's third-largest economy. Data released last Friday showed July industrial output accelerated 13.8 percent on surging capital goods production, strengthening the case for monetary tightening by the central bank to tame near double-digit inflation.
The markets were closed for a local holiday on Friday. The 30-share BSE index rose for the fifth straight session and climbed 2.17 percent or 408.67 points to 19,208.33, with 26 of its components advancing. It rose to as much as 19,243.44 points, its highest since January 2008.
"We are bullish on the market from a long-term perspective. But in the near term, the current levels have already priced in FY11 valuations," said Dipen Shah, senior vice-president of research for private client group at Kotak Securities.
"Liquidity is driving the market higher, but we need to have clarity on FY12 earnings." Shah expects Sensex to rise to 19,500 points at end-December and to 23,000 points by end-June 2011. Foreign funds have pumped in $13.5 billion into Indian equities so far in 2010, driving the benchmark index nearly 10 percent higher, in addition to record inflows of $17.5 billion, which led to an 81 percent rally in 2009.
In the year so far, Indian equities were the second-most preferred bet in the region after Japanese shares, which received foreign fund flow to the tune of $20.2 billion, data from Nomura showed. [ID:nSP71245] Top lender State Bank of India closed 5.5 percent higher, fter rising as much as 6.5 percent earlier to an all-time high of 3,175 rupees. HDFC Bank rose as high as 2,294 rupees and closed 1.9 percent higher at 2,282.15 rupees, while ICICI Bank scaled a 31-month-high to end 4.4 percent higher.
"Credit growth is expected to pick up. Market participants believe there may not be a steep (interest rate) hike (at the (central bank policy review on Thursday)," said Shah. Global regulators agreed on a set of radical new capital rules for banks on Sunday that could free up stronger lenders to release surplus cash while forcing some laggards to raise funds.
Energy giant Reliance Industries, which has the highest weight on the main index, climbed 3.6 percent, catching up with the rally in the broader market after recent underperformance. The stock is still down nearly 9 percent year to date. Export-oriented software companies gained on expectations of better economic outlook in the United States, their key market. Top outsourcer Tata Consultancy Services climbed 0.9 percent, while rival Infosys Technologies firmed 1.5 percent. Wipro, the No. 3 outsourcer, bucked the trend and dropped 1.3 percent.
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