The Sensex climbed 1.6 per cent on Tuesday, snapping a four-session slide, with banks and automakers leading the rise on expectations for an interest rate cut next month.
Fund managers are betting the economy would pick up pace in the coming fiscal year that starts in April after slowing sharply in the current year, traders said.
“Investors who felt left out in the rally since the beginning of the year are buying since the markets have fallen in the past few sessions,” said Alex Mathews, who heads research at Geojit BNP Paribas Financial Services. The main 30-share BSE index closed up 1.64 per cent, or 285.37 points, at 17,731.12 with all but six of its components rising.
The benchmark, which fell 5.3 per cent over the previous four sessions, is up 14.7 per cent in 2012 on foreign fund buying of about $7.1 billion worth of shares. A sharp slowdown in infrastructure sector growth to 0.5 per cent in January from an upwardly revised annual growth of 4.6 per cent in the previous month, should pile pressure on the central bank to ease its tight policy, traders said.
The sector accounts for 37.9 per cent of the country's industrial output. Data due on Monday is expected to show the economy likely grew at its slowest pace in more than two years during the final months of 2011, a Reuters poll showed.
Gross domestic product in Asia's third-largest economy grew at an annual 6.4 per cent rate in the quarter to end-December, according to the poll of 26 economists.
Forecasts ranged from six to 7.3 per cent with a majority of them lying below consensus.
Mathews said this would further fuel expectations for a rate cut when the central bank reviews policy on March 15.
State Bank of India, the country's biggest lender, rose 5.1 per cent, ICICI Bank gained 2.6 per cent and HDFC Bank added 2.9 per cent.
Automakers, whose sales get a boost from cheaper credit, rallied. Tata Motors, whose products include trucks, buses, luxury brands Jaguar Land Rover and the Nano — the world's cheapest car — firmed 5.15 per cent while carmaker Maruti Suzuki rose one per cent.
Energy conglomerate Reliance Industries, which has the heaviest weight on the benchmark index, rose 1.93 per cent. Oil and Natural Gas Corp advanced 0.84 per cent and GAIL India added 0.7 per cent after a media report said the two state-run companies plan to offer $2 billion to acquire Africa-focused gas explorer Cove Energy.
Top software services exporter Tata Consultancy Services and No 2 Infosys shed 2.04 per cent and 0.38 per cent, respectively. The country's showpiece $76-billion software services industry gets most of its revenue from the United States and Europe.
The 50-share NSE index rose 1.79 per cent to 5,375.50. In the broader market, there were about six gainers for every loser on a volume of 863 million shares. Elsewhere, the MSCI's measure of Asian markets other than Japan was up 1.01 per cent.
Stocks that moved
GVK Power and Infrastructure rose 8.1 per cent to Rs 17.3 after a newspaper cited unnamed sources as saying the company is in talks with UK-based BG Group to sell stake in seven oil and gas blocks off the country's west coast. GVK denied any deal of a stake sale.
Hexaware Technologies Ltd closed up 6.6 per cent at Rs 114.30 after a news channel cited sources as saying the Tokyo-headquartered NEC Corp is in talks to buy out the software services provider.
JSW Steel Ltd rose 4.6 per cent to Rs 793.85 after the company's January crude steel production increased 39 per cent year-on-year.