Diwali came early to Dalal Street on Monday with both the Sensex and Nifty marking their biggest daily gains in more than one week after the Narendra Modi government's energy reforms led to a rally in shares of oil retailers, while wins by the Bharatiya Janata Party (BJP) in Maharashtra and Haryana assembly elections raised expectations of more reforms.
The 30-share BSE Sensex rose 21.32 points, or 1.23%, to 26,429.8. The broader Nifty surged 99.70 points, or 1.28%, to end at 7,879.40.
Hindustan Petroleum jumped 7.4%, Bharat Petroleum rose 4.5%, while Indian Oil gained 3.8%.
Auto stocks also moved higher, as removal of price controls on diesel is seen helping demand for cars. Maruti Suzuki India gained 2%, Ashok Leyland ended up 2.1% and Mahindra and Mahindra rose 0.6%.
The International Monetary Fund further raised sentiment by predicting that India is poised to become a $2-trillion economy this year, with its GDP size crossing $3 trillion in 2019.
"The gods are really smiling on India this time," said Nandan Chakraborty of Axis Capital. "Macro factors such as rains, low crude prices have been very helpful. But, the government has also shown intent by going ahead with reforms."
Recently, global crude oil and other commodity prices have fallen to four-year lows, which may change India's twin deficits favourably, given that the country is a net commodity importer.
"The markets are reacting to GDP expansion and the improved prospects from exports," said Shankar Sharma of securities firm First Global. "Software, pharma and auto are still the main factors that will pull the Indian economy," he told HT over the phone from Dubai.
Foreign brokerages are also upbeat on India's prospects (see graphic). "Investor sentiment is likely to improve as the government is seen as more reform-oriented," a Nomura report said."The Modi administration has embarked on one of its biggest reforms over the weekend to modernise the economy," said Mole Hau of BNP Paribas.