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Sensex Rallies On PM's Assurance

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The BSE Sensex on Tuesday rallied by 154 points after Prime Minister Manmohan Singh assured that his government is determined to take "tough" decisions to reverse the rising fiscal deficit, amid oil prices falling below the $83 mark.

The hopes come a day after Fitch Ratings became the second credit agency after Standard & Poor's to threaten India's investment-grade status by cutting the sovereign outlook to "negative," and after the Reserve Bank of India dashed hopes for monetary stimulus by keeping interest rates on hold.

Slowing policy reforms and perceptions of a government hampered by an unruly coalition have been key reasons behind the steep falls in the markets that sent the rupee to a record low in May.

Helped by oil & gas, FMCG and banking stocks, the BSE benchmark index rebounded to close higher by 153.97 points or 0.92 per cent at 16,859.80. It had plunged 244 points yesterday as the RBI kept interest rates unchanged.

"Like other countries, we too allowed the fiscal deficit to expand after 2008 to impart a stimulus. We are now focussing on reversing the expansion. This will require tough decisions, including on controlling subsidies, which we are determined to take," Singh said while addressing leaders of the G-20 nations in Mexico.

Oil & gas counters, led by Reliance Industries, spurted as crude dropped below $83 a barrel in Asia. ITC rose to lead the rise in the FMCG sector, which is perceived as a defensive bet in a volatile market.

Bank stocks like ICICI Bank, HDFC Bank and SBI also rose around 1 per cent each after taking a beating yesterday.

The 50-share National Stock Exchange index Nifty shot up by 39.60 points, or 0.78 per cent to 5,103.85 with stocks of refinery, FMCG and healthcare staging a smart recovery.

The market mood was also supported as Finance Minister Pranab Mukherjee in New Delhi said the government is taking steps to improve inflow of foreign investment.

A firming trend in European stocks as Greece moved towards forming a new government and a Spanish debt sale meeting targets fuelled the domestic rally with 23 stocks out of the 30-share Sensex closing higher.

Dealers said investors ignored the rupee falling below the 56-mark yet again as global investors await signals in two-day US FOMC meeting, starting today, for a stimulus package

Still, investors are feeling plenty of caution, given the continued euro zone debt concerns and ahead of a Federal Reserve policy meeting, sending defensive and domestic-oriented stocks such as cigarette maker ITC higher as well.

"Traders are looking at any ray of hope as far as stalled policy decisions, like hike in diesel prices or FDI in retail, which can boost domestic sentiment," said Rikesh Parikh, vice-president of equities, Motilal Oswal Securities Ltd.

The 30-share BSE index rose 0.9 percent to 16,859.80 points, recovering a bulk of its 1.4 percent loss on Monday after the RBI disappointed markets by keeping interest rates unchanged.

The broader 50-share NSE index rose 0.8 percent to 5,103.85 points.

Hopes for a diesel price hike had dwindled after the government came under intense pressure last month after allowing a rise in petrol prices, but the optimists has been given a new push after Fitch Ratings on Monday become the second credit agency to cut the country's outlook.

Oil producers such as ONGC share with the government the cost of subsidising refineries by selling crude to them at a discount. Refiners then sell fuels, except for petrol, at government-mandated prices.

ONGC rose 1.7 per cent, while Oil India rose 1.15 per cent.

Refiners Bharat Petroleum Corporation rose 1.72 per cent, Hindustan Petroleum Corporation gained 5.96 percent, while Indian Oil Corporation added 3.65 per cent.

Still, traders described plenty of caution as well. Defensive stocks were in favour on Tuesday, with ITC up 2.6 per cent, while Sun Pharma rose 1 per cent.

Among other gainers, Reliance Industries added 2.5 per cent on continued support from its ongoing buy back programme.

Shares in GVK power & Infrastructure rose 4.8 percent on reported plans to raise $500 million to $600 million by selling a stake in its Singapore arm.

Mindtree rose 1.6 per cent after the founder of Cafe Coffee Day chain V G Siddhartha disclosed on Monday raising his stake in the software services provider.

Among decliners, shares in India's no.2 software exporter Infosys fell 1.4 percent on worries the company would lower its guidance given volatility in currency markets.