The BSE Sensex rose to its highest in six weeks, led by fresh buying in banking and real estate stocks, as crude oil prices fell to $118 a barrel in futures trading, easing concerns over inflation. The 30-share Sensex added 383.20 points, or 2.6%, to 14,961.07, its highest since June 19, on optimism that falling energy prices would narrow the fiscal deficit and ease pressure on the RBI to raise rates.
The NSE?s S&P CNX Nifty climbed 107.50 points, or 2.5%, to 4,520.85. The Sensex has risen almost 19% from its 15-month low on July 16.
The price of crude fell below the support level of $120 a barrel, where buying had first spurted in April on speculation that tropical storm Edouard will leave US oil rigs and refineries undamaged. Oil dropped to its lowest level since May 5 as Edouard?s wind speeds remained below hurricane strength. Opec is unlikely to cut production quotas at its next meeting said Mohammed al-Olaim, the Kuwaiti oil minister.
Plunging energy costs and a consequent rebound of the dollar reduced the appeal of gold as a hedge against inflation, and pushed the precious metal?s price to below $900 an ounce. Silver, platinum and wheat also declined.
Tempered concerns that inflation will accelerate helped domestic ten-year benchmark bonds gain the most in five years, pushing yields below 9% for the first time in more than a month. The yield on the 2018 paper dropped 23 basis points to 8.96% on Tuesday, the lowest since July 3 and the biggest decline since August 25, 2003.
The rupee gained the most in almost a week as demand for foreign currencies from refiners is expected to decline after global crude prices fell. Speculation that gains in the Sensex will help stem capital outflows strengthened the rupee further to 42.2425 a dollar, 0.6% higher, on Tuesday. The rupee is the third-best performer in the past month among the 11 most-traded currencies in Asia.
Riding on the hope that lower oil prices will improve India?s fiscal deficit, interest-rate sensitive sectors such as banks, automobiles and real estate gained on the domestic stock markets. Shares in SBI, the country?s biggest lender, climbed to its highest since May 22, while second-ranking ICICI Bank rose the highest since July 23.
Anita Gandhi, head of institutional business at broking firm Arihant Capital Markets, said, ?The past three sessions are witnessing some volatility, mainly due to retail investors? expectations of some banking and social reforms from the government. Valuations in bank stocks looked attractive, because of which there was genuine buying in these stocks.?
The stock market remained choppy throughout Tuesday as the Sensex touched a high of 14,986.63 points intra-day. It opened lower and slipped to the day?s low of 14,529.21.