The BSE Sensex gained the most in three weeks on Thursday as investors looked for bargains in battered down stocks, with energy giant Reliance Industries leading the gains after a disappointing performance in the year so far.
However, declining shares beat advancing ones in the ratio of 1.4 to 1 on the NSE, indicating a weak market breadth and triggering concerns the rise may falter soon.
Nervous world markets, sticky domestic inflation and rising interest rates weighed on investor sentiment.
Food inflation, a key driver of headline inflation, remains uncomfortably high in India and is being steered by fundamental factors, a deputy governor of the central bank said.
The country's food price index rose 9.13 percent in the year to June 11, compared with 8.96 percent in the previous week, government data showed on Thursday.
The 30-share BSE index firmed 1.01 percent -- its highest daily percentage-point gain in June so far, or 176.86 points to 17,727.49 points. It had started lower.
Twenty four of its components closed in the green.
"Only selected stocks have moved. It is just small pullback after the sharp decline," said R.K. Gupta, managing director of Taurus Mutual Fund.
"Some more rise is not ruled out in the next couple of sessions. But, then at every spike, people will come in and book profits," he said, adding that the macro picture was far from positive.
Foreign funds have been dumping Indian stocks recently, on worries over rising inflation and a slowdown in economic growth in the world's second-fastest growing major economy after China.
They have sold a net of $628 million in a total of eight sessions to June 21.
The stocks index is down 13.6 percent year-to-date, and is the worst performer among major Asian markets. MSCI's measure of Asian shares other than Japan is down nearly 3 percent so far in 2011.
Reliance Industries, which has the highest weighting on the main index , firmed 2.9 percent.
The stock has declined nearly 18 percent year-to-date, due to lack of positive triggers and adverse news flow surrounding it.
"While sentiment on the stock may continue to be governed by news flow, the stock now seems to be pricing in a near no hope situation as far as exploration & production is concerned, offering good value once (and if) all the noise subsides," Citigroup said in a note on Wednesday.
The brokerage retained its "buy" rating on the stock.
Cigarette to hotels business ITC advanced 3.4 percent to 191.45 rupees on optimism over its business prospects, traders said.
"ITC's cigarette volumes are likely to rebound strongly in the fiscal year 2012 owing to robust demand and flat excise duties," brokerage Motilal Oswal said in a note earlier this week.
The brokerage added the company's non-cigarette segments will also contribute to growth, and maintained a "buy" rating on the stock, and raised its target price to 216 rupees from 200 rupees earlier.
Reliance Infrastructure firmed 1.1 percent after the chief executive of the Indian utility, controlled by billionaire Anil Ambani, told Reuters the firm is in talks with investors and funds to sell stake in its roads, metro lines, and transmission businesses.
The 50-share NSE index ended up 0.8 percent at 5,320
Around 606 million shares were dealt on the NSE, slightly higher than its 90-day daily average volume of 601 million shares.
World markets were in the red as investors stayed away from risk after a relatively downbeat outlook from the U.S. Federal Reserve, and ahead of a summit of European leaders later in the day due to focus on the Greek bailout.
World stocks as measured by MSCI were down 0.8 percent by 1016 GMT, while emerging market equities shed 0.7 percent.
STOCKS THAT MOVED
* Top car maker Maruti Suzuki closed 2.1 percent lower at 1,099.30 rupees after its parent Suzuki Motor Corp's CEO acknowledged the risk that inflationary pressures may dampen Indian consumer spending, saying he was projecting slightly weaker sales this year than Maruti's official forecasts.
The stock slid as much as 2.7 percent to 1,092 rupees, its lowest level since July 2009.
* Mahindra Satyam ended down nearly 2 percent at 81.95 rupees. Early in the day, Bank of America Merrill Lynch has reinitiated coverage of the software services exporter with an "underperform" rating and a price target of 78 rupees.
* Drug maker Lupin gained 1.1 percent to 430.55 rupees and Hyderabad-based drugmaker Natco Pharma rose 2.61 percent at 269.40 rupees after signing a pact to market the generic equivalent of Tykerb tablets, used for treating breast cancer.
TOP THREE MAIN STOCKS BY VOLUME ON NSE
* GTL (GTL.NS) on 43.8 million shares
* GTL Infra on 39.5 million shares
* Unitech on 39 million shares
Source: in.reuters.com
Ravi Jhawar
Summer Intern-Technical; Analyst
DENIP Consultants Pvt. Ltd.
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