Banks lift Indian shares but worries stay

Mumbai: Indian shares rose two per cent on Mondayled by financial stocks on hopes for a recovery in battered US markets, but concerns over accelerating inflation kept a lid on the gains.

Traders said a big pay rise recommended by a panel for federal government workers would add upward pressure to annual inflation that hit a 10-month high in early March.

"We may be seeing the market bottoming out temporarily right now, but the concerns on inflation, economic growth and now the pay commission payments remain high," said Deepak Jasani, head of retail research at HDFC Securities.

Second-largest lender ICICI Bank rose nearly five per cent to Rs804.55 and bigger rival State Bank of India gained 2.7 per cent to Rs1,645.65 as investors betted improving US markets would boost sentiment for the battered sector.

Top mortgage firm Housing Development Finance Corp rose 7.7 per cent to Rs2,384.05, while the banking sector index rose 3.3 per cent.

The benchmark 30-share BSE index ended up 1.96 per cent at 15,289.40, with 22 components rising. It rose as high as 15,351.31 as trading resumed after a four-day weekend.

But the broader market was littered with losers as declining stocks overwhelmed gainers by four-to-one on volume of almost 290 million shares.

An Indian pay panel recommended yesterday an increase in pay and other benefits for federal government workers that would cost Rs125.61 billion ($3.1 billion) in the fiscal year 2008-09 if taken up.

The main index is 28 per cent below its record high of 21,206.77 hit on January 21, and nearly a quarter down in 2008.

Top engineering and construction firm Larsen & Toubro rose 3.5 per cent to Rs2,937.20, mostly on short covering, traders said.

Software boost

Software firms, which get half their revenue from the United States rose after Wall Street rallied on Thursday. Bellwether Infosys Technologies ended up 1.45 per cent at Rs1,361.35 and Wipro rose nearly six per cent to Rs398.75.

"Valuations at the frontline counters is becoming relatively affordable," Jasani said.

The 50-share NSE index gained 0.78 per cent to Rs4,609.85.

"I expect a gradual pullback in the next two to three weeks ahead of the corporate results season," said D.D. Sharma, vice-president at Anand Rathi Securities.

Elsewhere in the region, Karachi's 100-share index ended up 1.25 per cent at 15,182.21 after hitting a record high of 15,231.34 yesterday, but Colombo's All-share index fell 0.4 per cent to 2,526.04.