India's main share market index gained 1 percent on Friday to post its biggest gain in a week, bolstered by strong global markets, but lingering worries about surging inflation and interest rates are seen weighing on sentiment in the near term. The market ended the week down 1.1 percent despite the day's gains as investors had dumped stocks earlier on disappointing earning reports from some index heavyweights and expectations of a further rise in interest rates in Asia's third-largest economy.
Larsen & Toubro was the biggest gainer in the main index, rising as much as 4.7 percent to 1,670 rupees on Friday, bolstered by brokerage upgrades a day after the company posted a 17 percent rise in quarterly profit. The benchmark 30-share BSE index ended the day up 1.02 percent, or 184.69 points, at 18,326.09, after having risen as much as 1.6 percent during the day on value buying in beaten down stocks.
The index has fallen about 11 percent this year, with foreign funds turning net sellers of Indian shares worth $1.66 billion in this month to Wednesday. "There are several headwinds to fight with, ranging from macro economic issues to pressure on corporate earnings due to rising interest rates," said Jagannadham Thunuguntla, head of research at SMC Global Securities.
The Reserve Bank of India raised interest rates in early May for the ninth time since March 2010 by a sharper-than-expected 50 basis points, and said fighting inflation was its priority, even at the expense of some short-term growth. The wholesale price index, the main gauge of prices in India, rose 8.66 percent annually in April and the prospect of higher energy prices will keep pressure on the central bank to raise interest rates in June and maintain a hawkish stance.
Shares in financials such as ICICI Bank and HDFC Bank rose 1.3 percent and 1.8 percent, respectively, on value buying at lower levels. The ICICI Bank stock had fallen 4 percent in the last four sessions. Banking shares have been beaten down in recent sessions on fears that the series of rate hikes would hit demand for loans by corporate houses and retail borrowers, and put pressure on asset quality.
Larsen & Toubro's stock closed up 3.6 percent at 1,652.25 rupees, extending its gains of 5.9 percent in the previous session, after the company posted a 17 percent rise in fourth-quarter net profit and gave a strong outlook. RBS raised its rating on L&T to "buy" from "hold" and raised the stock's price target, calling it the "best play on the road-based longer-term Indian capex story".
Goldman Sachs also raised its target on L&T to 2,006 rupees from 1,987 rupees. State-run explorer Oil and Natural Gas Corp fell 1.4 percent to 273.95 rupees after the company said that the additional subsidy burden imposed on it by the government would impact its earnings and share sale plans.
An industry source told Reuters that Indian upstream firms will compensate state-run fuel retailers for about 38.7 percent of their revenue losses on subsidised sales for the fiscal year ended in March up from 33.33 percent earlier. The broader 50-share NSE index ended up 1.07 percent at 5,486.35 points. In the broader market, gainers led losers in the ratio of 1.4:1 on total volume of over 509 million shares.