The gains came despite a sharp downward revision in India's 2012 growth forecast by the International Monetary Fund. It expects India GDP for 2012 at 4.9 per cent, perhaps the most pessimistic growth outlook by a global body. The IMF cited red tape, weakening business sentiment, rising current account deficit and rupee depreciation for the sharp downward revision in growth forecast. (Read: IMF cuts India growth forecast to 4.9% despite reforms, strong rupee)
IMF lowered its forecast despite the government unleashing a series of reforms to attract foreign investment and boost business sentiment in the country. The government has also undertaken a series of steps to contain rising fiscal deficit in the hope of thwarting a downgrade by rating agencies. The reform measures have sent stock market to a 15-month high and the rupee has gained 5 per cent over the last month.
Analysts said Indian markets may continue to rise on the back of liquidity.
"The critical thresholds need to be crossed beyond which it will be clear that the trend is on the upside... I will definitely play the market on the long side," independent trader Sudhanshu Pandey said.
At 09.25 a.m., the Sensex traded 175 points higher at 18,884 while the Nifty gained 52 points to 5,728.
All groups of stocks traded higher. Banks, metals and capital goods traded with over 1 per cent gains on the BSE.
On the Nifty, 44 of the 50 stocks traded higher. Infra major Jaiprakash Associates was the top gainer, up 2.2 per cent followed by commercial vehicles major Tata Motors, which advanced 2 per cent.
Shares in Reliance Industries traded with 0.85 per cent gains after the sharp downward move yesterday. RIL had slumped 4.5 per cent on Monday on the back of a downgrade by brokerage firm Morgan Stanley.
However, shares in realty major DLF extended losses, falling 1 per cent in early trade. DLF shares have come under pressure on account of accusations by anti-corruption activists that the company had allegedly gifted Robert Vadra, the son-in-law of Congress President Sonia Gandhi, a 65-crore interest-free loan and sweetheart deals on a series of apartments in Gurgaon. DLF and Mr Vadra have refuted the allegations.
Asian shares rose but were capped by concerns over global growth prospects, especially in the world's second-biggest economy China, and expected weak U.S. corporate earnings. The International Monetary Fund cut its global growth forecast to a 3.3 per cent expansion for 2012, down from its July estimate of 3.5 per cent, making it the slowest year of growth since 2009. It warned U.S. and European policymakers that failure to fix their economic ills would prolong the slump.
(With inputs from Thomson Reuters)