Indian shares rally 5.9 pct on hopes for reforms

Enlarge Photo The Bombay Stock Exchange building is seen behind a traffic signal in this file photo....

Wed, Jul 23 05:11 PM

By Narayanan Somasundaram

MUMBAI (Reuters) - Indian shares rose 5.9 percent on Wednesday, their biggest single-day rise in four months, as investors betted the government would revive stalled economic reforms after it won a confidence vote.

Financial stocks such as ICICI Bank led the rally on hopes the emboldened government may try to push through banking, insurance and pension reforms such as easing foreign investment limits and allowing higher private participation.

The 30-share BSE index rose 5.94 percent, or 838.08 points, to 14,942.28, its highest close since June 19. All but two components climbed.

It has risen 18.8 percent in five straight sessions, but is down 26.4 percent so far in 2008.

"This is the first time (in the last four years) that the central government would be in office without the support of the Left parties, presenting an opportunity to push some of the pending reforms," UBS said in a research note.

Sentiment was also boosted by falling oil prices, which lifted world stocks to a three-week high.

Oil was trading at 125.90 a barrel by 1014 GMT, well below record highs of above $147 hit nearly two weeks ago. India imports about 70 percent of its oil and high prices had been a key factor behind double-digit inflation.

The government's win in a confidence vote late on Tuesday also cleared the way for a civilian nuclear deal with the United States, which was opposed by its left allies and resulted in the parliamentary test.

Power equipment makers such as Bharat Heavy Electricals and Larsen & Toubro, and utilities, rose on expectation a U.S. nuclear deal would bring in orders or tie-ups.

Among the companies that rose sharply were those controlled by billionaire Anil Ambani, who was once elected to parliament with the backing of regional Samajwadi Party, the group whose support clinched the win for the coalition on Tuesday.

Reliance Communications, Reliance Infrastructure, Reliance Capital and Reliance Natural Resources Ltd, all part of his group, rose between 10 and 23 percent.

Financials were boosted after Finance Minister Palaniappan

Chidambaram said the government would work with other parties to

push reforms, and senior officials said foreign investment limits

in private banks and insurance firms were on the agenda.

No. 2 lender ICICI rallied 11.6 percent to 738.25 rupees, its highest close in more than a month. The stock has gained 42 percent in five sessions, but is down 40 percent on the year.

Top lender State Bank of India rose 10.5 percent to 1,543.80 rupees, its best close in two months.

The bank index gained 10 percent.

However, analysts were cautious about the outlook.

"This is basically a swing like reaction to yesterday's confidence vote and falling oil prices. Effects of this trigger will wear out in a few days," Deepak Jasani, head of retail research at HDFC Securities, said.

With annual inflation expected to hit more than 12 percent in mid-July, traders were also circumspect about what Reserve Bank of India would do at its quarterly review on July 29.

"We think this is likely to prove to be just another powerful bear market rally," Morgan Stanley said in a note.

"After all the market still faces headwinds from fragile global financial markets, likelihood of higher long bond yields, slowing growth and prospects of earnings downgrades," it said.

In the broader market, 2,270 gainers swamped 436 losers on volume of 438 million shares.

The 50-share NSE index rose 5.6 percent to 4,476.80 points.

STOCKS ON THE MOVE

* Bharat Heavy climbed 10.9 percent to 1,772 rupees and Larsen rose 7.6 percent to 2,766.65 rupees, its highest since June 17.

* Sesa Goa Ltd jumped 14.8 percent to 3,304.20 rupees, after the top private-sector iron ore exporter's quarterly profit soared more than five times to 6.4 billion rupees, beating analysts' forecasts of 4.1 billion rupees.

* Siemens Ltd rose 11.5 percent to 556.35 rupees, after the power equipment and services firm's net profit for the June quarter more than doubled to 1.69 billion rupees and it reported more new orders.

* State-run refiners such as Indian Oil, Hindustan Petroleum and Bharat Petroleum rose between 4.4 and 6.8 percent as the drop in global oil prices would help ease pressure on their cash flows.

* Max India, which runs an insurance joint venture with New York Life, rose 7.5 percent to 193.80 rupees on hopes it would benefit from reforms.

MAIN TOP 3 BY VOLUME

* Reliance Natural Resources Ltd on 55 million shares

* IFCI Ltd on 21.3 million shares

* Reliance Petroleum Ltd on 16.9 million shares

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