BSE Sensex rises 2nd day, but outlook cautious

People watch a large screen displaying India's benchmark share index on the facade of the Bombay Stock Exchange (BSE) building in Mumbai January 24, 2008.

MUMBAI (Reuters) – The BSE Sensex nudged higher for a second day on Thursday as strong U.S. manufacturing data eased some concerns about the pace of global economic recovery, but investor confidence was brittle.

Financials topped the gainers on hopes an expanding economy will boost demand for loans, and help boost earnings. Auto makers and cement producers that saw higher August sales also climbed.

The 30-share BSE Sensex ended up 0.18 percent, or 32.44 points, at 18,238.31, with 18 components advancing. Trading was choppy, with an early rise of 0.8 percent triggering profit-taking and sending the index briefly into negative territory.

"I think the market is now in a zone where it is better to be cautious," said Om Ahuja, head of private wealth management and strategy at Emkay Global.

India's economy grew at its fastest pace in nearly three years in the June quarter on strong manufacturing growth and better farm output, but there were doubts whether the annual 8.8 percent rate of expansion can be sustained.

Foreigners have moved $12.9 billion into Indian equities this year and helped the benchmark index gain 4.4 percent. The market has outperformed emerging market peers such as Brazil's Bovespa, Russia's RTS index and China's Shanghai Composite Index.

Brazil and China's indexes have shed 2.2 percent and nearly 19 percent respectively in the year to date, while the Russian benchmark has edged up 0.8 percent.

In 2009, the BSE index had jumped 81 percent on record foreign portfolio inflows of $17.5 billion. The relatively small rise this year has been due to inconsistent flows and a belief that many stocks are too pricey.

"It is not advisable to deploy fresh money right now. Booking profits is a better idea," Ahuja said.

Leading private-sector lenders ICICI Bank and HDFC Bank climbed 0.8 percent and 1.5 percent respectively.

Mortgage lender Housing Development Finance Corp rose 1.5 percent while leading lender State Bank of India dropped 0.7 percent.

Jaiprakash Associates rose 4.3 percent, the biggest one-day gain in more than three months, after its August cement dispatches jumped 51 percent.

Tata Motors gained 0.8 percent, while Maruti Suzuki rose 0.2 percent on robust August sales.

A normal monsoon season, improving consumer sentiment and an overall recovery in the economy should benefit auto sales, Macquarie analyst Sanjay Doshi said in a note.

"We expect sales numbers to remain healthy at least until the festive season, as inventory levels are below average," he wrote.

Tata Motors, the country's largest truck maker that also makes cars, including the Nano and Jaguar and Land Rover, plans to invest $641 million every year for the next three years, its

chairman said on Wednesday.

Top motorcycle maker Hero Honda, however, fell 3.4 percent as its August two-wheeler sales rose by only 2 percent.

Energy giant Reliance Industries ended up 0.1 percent at 937.15 rupees after rising as much as 1.2 percent early. HSBC Securities cut its target price on the energy major to 1,058 rupees from 1,186, while maintaining a "neutral" rating on the stock.

Advancing shares overwhelmed declining ones in a ratio of 1.8:1 on relatively lower volume of 411 million shares.

The 50-share NSE index firmed 0.3 percent to 5,486.15.

At 1024 GMT, the MSCI world equity index rose 0.2 percent, while the more volatile emerging markets index climbed 0.5 percent.

STOCKS THAT MOVED

* Bajaj Auto raced 1.3 percent to 2,784.50 rupees, as the second-largest motorcycle maker said its August auto sales rose 55 percent.

* Reliance Broadcast Network rose 5 percent to 116 rupees after its board approved raising over 4 billion rupees through an issue of equity shares to its founder and other investors.

* Koutons Retail India Ltd gained 1.3 percent to 309.80 rupees after it said its board would meet on Sept. 4 to consider raising funds through issue of shares to the public or to qualified institutional buyers.

MAIN TOP 3 BY VOLUME

* Suzlon Energy on 12.7 million shares

* Piramal Healthcare on 12.5 million shares

* Ispat Industries on 10.6 million shares

(Editing by Ranjit Gangadharan)

(For more business news visit Reuters India)