December 15, 2017 / 5:36 AM / 6 months ago

Indian shares up 1 pct as polls predict key state win for ruling party

* NSE index up 0.90 pct, BSE index 0.81 pct higher

* HDFC Bank among biggest gainers

* Rupee up 0.4 pct; bonds steady

By Arnab Paul

Dec 15 (Reuters) - India’s stock markets rose on Friday driven by strong gains in financials, with risk appetite up after early forecasts about the result of a key state election indicated a victory for Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP).

Seen as a litmus test for Modi ahead of a national election in 2019, surveys showed that the BJP will be able to shake off their most serious challenge yet from a combined opposition in the western Indian state of Gujarat. Voting closed on Thursday, and the results will be out Monday.

“The benefit for the markets if BJP wins is that there will be no obstruction in the form of policy changes,” said R. Sreesankar, co head - institutional equities at brokerage Prabhudas Lilladher.

“However, it is difficult to gauge the long-term impact because of factors like interest rates rising globally, which could lead to liquidity drain from the markets.”

Separate exit surveys released for elections held in the northern Indian state of Himachal Pradesh also showed Modi’s party emerging as a winner.

The poll results will also boost sentiment among foreign investors, traders said.

The broader NSE index was up 0.90 percent at 10,344.7 as of 0529 GMT, while the benchmark BSE index was 0.81 percent higher at 33,517.33. The indexes earlier rose more than 1 percent each.

Bank stocks were among the biggest gainers, with index heavyweight HDFC Bank Ltd rising as much as 2.72 percent. The bank said late on Thursday that it plans to raise funds through a qualified institutions placement.

The rupee gained to 64.11 versus the dollar from 64.34 on Thursday, while the benchmark 10-year bond yield eased to as much as 7.11 percent before moving back to 7.13 percent, unchanged from Thursday.

“Had the exit poll results been bad for Gujarat, then we would have seen foreign investors selling debt,” said a foreign bank dealer.

The poll results have returned optimism to the markets after investors turned cautious earlier in the week when data showed retail inflation in November breached the central bank’s medium-term target of 4 percent, and annual industrial output grew a lower-than-expected 2.2 percent in October.

$1 = 64.1500 Indian rupees Reporting by Arnab Paul in Bengaluru; Editing by Biju Dwarakanath

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