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Sensex, Nifty Surge; Govt Resolute In Reforms

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The BSE Sensex and Nifty rose more than 2 per cent on 21 September to their highest since July 2011 as hopes the government will announce additional reform measures were bolstered after the Samajwadi Party continued to provide outside support to the ruling coalition.

Finance minister P. Chidambaram said India would slash a tax on overseas borrowing by local companies and implement a scheme to attract retail investors into stocks, following up on the government's recent big ticket reforms.

The announcement boosted infrastructure stocks such as Larsen & Toubro, which are expected to especially benefit from easier access to overseas funding markets.

Financial companies with insurance units such as Reliance Capital surged on hopes foreign direct investment limits would be increased, while lenders such as State Bank of India gained on hopes additional measures would increase the prospect of interest rate cuts from the central bank.

"Withholding tax cut is a significant thing as it reduces the cost of borrowing for corporates," said Sandip Sabharwal, chief executive officer for portfolio management services at Prabhudas Lilladher.

"Whenever market sentiment improves and outlook on economy improves, normally, financials lead the rally. Excessive allocation to defensives and cash is now getting reallocated," he added.

The BSE Sensex rose 2.2 per cent as of 0830 GMT after earlier hitting its highest intraday level since July 26.

The Nifty was up 2.4 per cent after earlier hitting its highest level intraday since July 8, 2011.

The government's slew of big ticket reforms since last week, including a hike in diesel prices, have sparked a rally in Indian stocks.

Investors are hopeful the government will stick to its reforms even after a key ally, Trinamool Congress, withdrew its support to the ruling coalition over some of the measures.

Helping improve sentiment was the expression of support by Samajwadi Party chief Mulayam Singh Yadav, who said to local news channels on Friday his party would continue to support the government although it is not part of the ruling coalition.

Infrastructure and capital good stocks surged after Chidambaram said the government would slash a tax on overseas borrowing by local companies to 5 percent from 20 percent.

Larsen & Toubro rose 4.2 per cent while Bharat Heavy Electricals surged 7.1 per cent.

Reliance Capital surged 10 per cent on hopes the government will next consider increasing the foreign direct investment limit to 49 per cent from 26 per cent.

Other financial companies with insurance units also gained, with Bajaj Finserve up 3.5 per cent.

Banks also gained on hopes that additional reform measures would increase the chances the Reserve Bank of India would cut interest rates given the government's fiscal action has been seen as a key prerequisite.

State Bank of India rose 4.6 percent, while ICICI Bank gained 4.7 per cent.