Nifty tops 6000 as US fiscal cliff avoided; SAIL up 4%

The US Congress approved a tax increase on Tuesday targeted at wealthy households in a budget deal that should stop the economy from slipping into a recession.

The Nifty was up 54 points at a 2-year high of 6005, and the Sensex rose 171 points to 19751.

Market experts however cautioned against buying into the rally.

“Much of the rally in the last few months has been on the expansion of PE (price earning) multiples in anticipation of earnings growth; we are yet to see the growth happening,” said Madhu Kela, Chief Investment Strategist at Reliance Capital.

Capital goods, metal, banking and oil & gas shares were among the best performers, while investors continued to shun defensive sectors like IT and FMCG.

A key near term worry is the rupee coming under pressure because of the high current account deficit. That in turn, could prompt FIIs to book profits to protect against forex losses arising from a weak rupee.

"Even though one could expect to see bouts of INR appreciation in the coming weeks on the back of either push factors (formalization of a mini-deal on the fiscal cliff) or pull factors (a larger-than-expected rate cut by the RBI, a positive Budget), the fact that the Current Account Deficit is unlikely to meaningfully compress in the coming quarters is expected to serve as a key headwind for the INR (Indian rupee) in 2013," said a note by brokerage house JPMorgan.

Steel Authority of India, National Aluminium and Canara Bank were among the prominent gainers, rising around 3-4 percent. Metal shares were strong on Tuesday too, as any improvement in the US economy spells cheer for the global economy as a whole.