MUMBAI The BSE Sensex rose on Tuesday led by lenders such as SBI, as hopes parliament will pass the banking amendment bill outweighed disappointment after the Reserve Bank of India (RBI) kept interest rates and the cash reserve ratio unchanged.
The RBI kept rates on hold on Tuesday, ignoring government pressure to reduce borrowing costs, but said it was shifting focus towards boosting a flagging economy, raising the odds of a rate cut as early as January.
Analysts said domestic markets benefitted from improved demand for global risk on the back of signs of a U.S. budget compromise intended to resolve the so-called "fiscal cliff."
"Market is getting more hopeful that RBI will lower rates in the next policy meet," said Hemant Khanwala, Head of Equities, Kotak Life Insurance.
The banking amendment bill should pass through looking at the debate in the ongoing parliament session, he added.
The BSE Sensex rose 0.63 percent, or 120.33 points, to end at 19,364.75, marking its biggest single day percentage gain since November 30.
The Nifty rose 0.66 percent, or 38.90 points, to end at 5,896.80, marking its highest close in a week.
Shares in banks such as State Bank of India ended 1.2 percent higher after falling as much as 2.8 percent. ICICI Bank (ICBK.NS) rose 0.4 percent, while Bank of India (BOI.NS) gained 2.9 percent.
Gains were fuelled by expectations the banking amendment bill will be passed in parliament after the government dropped a controversial clause that would have allowed banks to trade in commodity futures.
Parliament is expected to amend banking laws that include raising the limit on shareholders' voting rights in public and private sector banks, a step seen as largely positive towards the government's reform drive.
Bharat Heavy Electricals Ltd (BHEL.NS) gained 4.2 percent after CLSA added the stock to its Asia ex-Japan long only portfolio with a 3 percent weighting.
Tata Consultancy Services (TCS.NS) rose 0.4 percent after its management reiterated its positive forecast for fiscal years 2013 and 2014 in a meeting with analysts on Monday.
Shares in Sun Pharmaceutical Industries (SUN.NS), India's most valued drugmaker, gained 2.2 percent after its unit agreed to buy the generic drugs business of U.S.-based URL Pharma from Japan's Takeda Pharmaceutical Co.
However, among stocks that fell, Jaiprakash Power Ventures Ltd (JAPR.BO) ended 6.8 percent lower after its promoters sold 49.7 million shares, or about 2 percent of its equity, at an average price of 39 rupees a share.
Shares in Financial Technologies (India) Ltd FITE.NS fell 0.5 percent and Multi Commodity Exchange of India Ltd (MCX) ended 0.7 percent lower after the government said it would drop a controversial clause from a banking bill pending in parliament that would have allowed banks to trade in commodity futures.
Traders said if the bill was approved in its original form it would have led to additional trading volumes in the commodity market and would have been positive for both companies.
(Additional reporting by Manoj Dharra; Editing by Sunil Nair)