* BSE index hits record high at 21,483.74 pts
* Rupee hits four-month high against dollar
* Analysts caution rally could be capped
(Updates prices, adds analyst comment)
By Rafael Nam and Abhishek Vishnoi
MUMBAI, Dec 9 (Reuters) - Indian shares rose to a record
high on Monday after the main opposition party, widely seen by
investors as being more business friendly, swept recent state
elections, even as doubts persist about how long the rally can
The benchmark BSE index rose more than 2 percent at
one point to surpass its previous all-time peak hit on Nov. 3,
capping a remarkable turnaround from a few months ago when the
country was gripped by its worst market crisis since 1991.
Results on Sunday showed Hindu nationalist Bharatiya Janata
Party (BJP) swept three out of four key state elections held
since last month, delivering a blow to the ruling Congress Party
and bolstering the prospects of opposition prime minister
candidate Narendra Modi in national polls due by May next year.
Despite recent policy action by Congress, including moves to
attract foreign investments, markets have been clamouring for
more measures to bolster an economy growing at its slowest in a
decade and to ease infrastructure bottle necks that keep
Investors, for now, have concluded that BJP is the most
likely to deliver change, analysts said.
"The BJP is considered more right-of-center, pro-business
and reform-oriented," Nomura said in a note to clients.
"The fact that runaway spending by the ruling party has not
won any votes could be taken as a very positive signal by the
markets in terms of voter preference for the kind of policy
favoured by the electorate."
The BSE index gained as much as 2.3 percent to a record high
of 21,483.74 points, while the NSE index rose as much as
2.5 percent to an all-time high of 6,415.25, surpassing its
previous peak hit on January 2008.
Both indexes ended up around 1.6 percent.
Sectors such as infrastructure and construction, seen as
most benefitting from a potential BJP victory in elections next
year, did especially well.
Builder Larsen & Toubro Ltd, for example, rose 4.1
percent. Lenders, which would benefit from a business cycle
recovery, also surged, with ICICI Bank up 5 percent.
(For more individual stock movements click )
Meanwhile, the partially convertible rupee rose to
as high as 60.84 to the dollar, its strongest level since Aug.
12, when the currency was headed to a series of record lows.
Still, analysts warned a BJP victory next year is far from
guaranteed given it remains a dominant force only in the
northern belt where the most recent elections were held. It has
struggled to build up its presence in southern and eastern
India, despite several attempts.
The market rally could eventually be capped by worries about
an economy expected to grow below even the decade low of 5
percent hit in the previous fiscal year.
The Federal Reserve could also move soon to end its massive
stimulus after signs of an improving U.S. economy.
Only a few months ago India was badly roiled by fears of an
early end to the Fed tapering, ushering the worst market crisis
since the balance of payments turmoil two decades ago.
Although India is seen as being in a stronger position after
its current account deficit has narrowed to a more than
four-year low, the prospect of foreign selling is a concern.
Foreign investors have bought 1 trillion rupees ($16.23
billion) so far this year in shares, making these capital flows
vital for India's current account balance.
Furthermore, high inflation has forced the Reserve Bank of
India to raise interest rates by half a percentage point over
the previous two months. A continued spike in consumer prices in
data due out on Thursday could bolster views the central bank
will again tighten monetary policy again this month.
"There should not be such excitement around new high. It is
not understandable in context of growth and valuations."
Sanjeev Prasad, executive director and co-head of Kotak
Institutional Equities in Singapore.
($1 = 61.6325 Indian rupees)
(Additional reporting by Subhadip Sircar and Swati Bhat;
Editing by Kim Coghill)