Indian shares rose 1.9 percent on Tuesday, recovering strongly from a fall into negative territory after the Reserve Bank of India tightened policy, with gains led by Larsen & Toubro Ltd. and Reliance Industries Ltd.
The RBI raised the cash reserve requirement
- the proportion of cash banks have to keep with it on deposit - by 50 basis points, a move it said would drain 160 billion rupees out of the banking system.
That initially knocked bank and auto stocks down sharply on concerns that loan demand and their profitability would fall, but the RBI's decision to hold interest rates steady helped restore market confidence.
"The market has reacted positively because the uncertainties over interest rate hikes is over," said Amitabh Chakraborty, president for equities at Religare Securities.
"The buzz in the market is that this cash reserve ratio hike may not lead to a rise in interest rates," he said.
The benchmark BSE 30-share index closed 290.08 points higher at 15,550.99 points, with 24 stocks gaining. The index, which hit a record high of 15,868.85 last week, rose 6.15 percent over July.
Leading capital goods company Larsen & Toubro rose 6.6 percent to 2,606.50 rupees, taking its gains for the year to more than 80 percent, as investors bet on the need for growing investment in India's creaky infrastructure.
While initially unsettled by the reserve hike, traders said the fact interest rates were held steady eased concerns of a slowdown in housing demand. Top mortgage firm Housing Development Corp. Ltd. rose 5.7 percent to 2,016 rupees.
But auto makers fell on concerns of slower vehicle sales if banks had less money to lend, as nearly all commercial vehicles in India and more than 80 percent of passenger vehicles are bought with loans and finance options.
Mahindra & Mahindra fell 3.1 percent to 729.15 rupees and top vehicle maker Tata Motors ended down 1.1 percent at 699.30 rupees.
Top private firm Reliance Industries Ltd. rose 2.4 percent to 1,892.30 rupees.
Shares in second-ranked mobile firm Reliance Communications Ltd. rose 3.35 percent to 558.80 rupees after its June quarter net profit more than doubled on higher usage in the world's fastest-growing mobile market.
In the broader market, gainers led losers 1,699 to 946 in a total volume of more than 289 million shares.
The 50-share NSE index ended 2.00 percent higher at 4,528.85.
Elsewhere in the region, Karachi's 100-Share index rose 0.77 percent to 13,739.53 and Colombo's All-Share index inched up 0.03 percent to 2,442.11 points.
STOCKS THAT MOVED:
* Shares in Bharat Heavy Electricals rose 5.3 percent to 1,731.70 rupees after it posted a 22 percent rise in June quarter net profit.
* Budget airline SpiceJet Ltd. rose 5.2 percent to 59.05 rupees after the company reported a June quarter profit of 185.4 million rupees.
* Aditya Birla Nuvo rose 7.3 percent to 1,475.35 rupees after it reported a 50 percent rise in April-June net profit at 998 million rupees.
MAIN TOP THREE BY VOLUME
* Reliance Natural Resources on 13.1 million shares
* IFCI Ltd. on 8.4 million shares
* Suryachakra Power Corp. on 5.2 million shares
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