MUMBAI The BSE Sensex gained the most in nearly seven months on Tuesday, breaching a key technical resistance, as rate sensitive stocks like autos and banks rose on expectations the Reserve Bank of India (RBI) will cut rates next month on a continued slump in global commodity prices.
A slump in global gold and crude prices will provide elbow-room to the RBI to lower rates for the third time this year as it will help ease some concerns on India's current account gap.
Barclays Capital estimates India will be the main beneficiary among emerging markets as the combination of fall in gold and commodity prices, if sustained, should wipe out $20 billion of the current account deficit of the next twelve months.
A string of recent positive domestic data has bolstered hopes that the central bank will be able to cut rates on May 3 and signal room for some more easing.
Lenders extended gains for a second session after data showed Monday that headline inflation fell to a three-year low. State Bank of India rose 1.7 percent, while ICICI Bank Ltd (ICBK.NS) rose 3 percent. Mortgage lender Housing Development Finance Corp (HDFC.NS) rose 3.7 percent.
Auto shares rose on hope that any rate cut will lower vehicle financing costs. Maruti Suzuki India Ltd (MRTI.NS) gained 4.2 percent, while Mahindra & Mahindra Ltd (MAHM.NS) rose 3.9 percent.
"The crash in gold and crude prices led to the gains for the day. The rally has legs to extend itself to a sustained recovery," said G. Chokkalingam, executive director and chief investment officer, Centrum Wealth Management.
"The current scenario is very positive for current account and inflation."
The BSE Sensex rose 2.1 percent, or 387.13 points, to 18,744.93, its biggest daily percentage gain since September 21, 2012.
The 50-share Nifty gained 2.2 percent, or 120.55 points, to 5,688.95.
Both indexes breached and closed above a key technical resistance at 200-day moving average.
Indian oil companies rose on hopes that a slump in crude prices would lower cost of under-recoveries. Bharat Petroleum Corp (BPCL.NS) gained 3 percent, while Oil & Natural Gas Corp (ONGC.NS) ended up 4 percent.
Reliance Industries Ltd (RELI.NS) gained 1.4 percent ahead of March quarter earnings, with expectations of decent growth.
ITC Ltd (ITC.NS) rose for a fourth straight session which dealers said were due to price hikes the company had effected in some categories of cigarettes. It ended 2.7 percent higher.
Software companies extended losses on continued concerns following Infosys Ltd's (INFY.NS) muted revenue outlook for the current fiscal year.
Infosys shed 1.8 percent, while HCL Technologies Ltd (HCLT.NS) lost 0.3 percent.
Gold loan providers continued to slump on fears that borrowers may not repay their loans on falling bullion costs. Muthoot Finance Ltd (MUTT.NS) fell 10.6 percent, while Manappuram Finance Ltd (MNFL.NS) lost 9.8 percent.
(Additional reporting by Abhishek Vishnoi; Editing by Anand Basu)