BSE Sensex recovers on rate cut hopes, valuations

By Abhishek Vishnoi

MUMBAI (Reuters) - The BSE Sensex and Nifty recovered on Monday after earlier hitting their lowest intraday levels since early January, as hopes for interest rate cuts sparked gains in banks, while bargain-hunting lifted blue chips such as Larsen & Toubro.

Falling oil prices as well as declining core inflation and growth in India give the Reserve Bank of India room to adjust interest rates, a deputy governor said on Monday, two weeks before a policy review.

The comments came after data last week showed January-March domestic growth falling to a nine-year low of 5.3 percent, at a time when the outlook for the global economy also worsens.

The hopes for interest rate relief allowed Indian stocks to snap a three-day losing streak and outperform most Asian indexes, with the MSCI Asia-Pacific index excluding Japan ending down more than 2 percent.

Still, the outlook for stocks remains weak, given global risk aversion could continue to flare up, while investors in India are likely to be on edge until the central bank's meeting on June 18.

"There is a possibility of an interest rate cut in India because of GDP numbers, and if Greece remains in the union then we may see a sharp rally coming in June," Mehraboon Irani, Principal and Head at Nirmal Bang, referring to the euro zone.

The BSE Sensex rose 0.15 percent to close at 15,988.40 points on Monday, recovering from an earlier fall of as much as 1.4 percent to its lowest intraday since January 9.

The gains were enough to stop a three-day losing run during which the Sensex fell 2.9 percent.

The Nifty rose 0.14 percent to 4,848.15 points.

The weak GDP data has sparked a raft of growth downgrades from analysts, and is bolstering hope the central bank will shift focus from inflation to boosting the economy.

The fall in oil prices also helps offset some of the potential inflationary impact from a weak rupee, which has recovered since hitting a record low of 56.52 on Thursday.

Banking shares recovered from earlier losses. HDFC Bank shares rose 1.1 percent, while ICICI Bank and State Bank of India gained 0.9 percent each.

Bargain-hunting lifted some blue chips, with Larsen & Toubro ending up 3.4 percent after the power equipment maker dropped 5.8 percent over last four sessions.

Tata Motors gained 1.9 percent, after slumping 18.6 percent during the previous three sessions after posting disappointing operating margins in the January-March quarter.

State-owned oil refiners and explorers also rose following a slump in crude prices, as both sectors in India tend to track movements in oil prices because the government caps prices of petrol products such as diesel, cooking gas and kerosene.

Oil refiners Hindustan Petroleum Corporation rose 4.4 percent, while explorer Oil and National Gas Corp rose 3.2 percent.

Future Capital Holdings shares rose 5 percent to 143.75 rupees, after Warburg Pincus LLC agreed to buy a controlling stake in it for nearly $100 million from current majority shareholder Pantaloon Retail .

The deal at 162 rupees per share, marked an 18 percent premium to Future's Friday's closing price.

Pantaloon Retail surged 7 percent.

However, shares in the franchiser for Domino's Pizza and Dunkin' Donuts in India, Jubilant Foodworks , fell 6.8 percent, after J.P.Morgan initiated coverage on the stock as "underweight" citing expensive valuations as one of the factors.

Software service exporters fell after U.S. jobs data came well below expectations on Friday. Tata Consultancy Services fell 0.9 percent while Infosys ended 0.2 percent lower.

(Additional reporting by Manoj Dharra; Editing by Rafael Nam)