Sensex gains 300pts in early trade

The markets have bounced in opening trades following rally in Asian and US markets after the US Federal Reserve pledged to hold rates near zero for an extended period.

The Nifty touched a high of 5,198, and is now up 85 points, at 5,158 and the BSE benchmark Sensex advanced 274 points, at 17,163. Heavyweights Infosys, Reliance Industries and TCS which were battered badly, contributed 110 points on the Sensex.

Investors flocked back into equities to pick up bargain buys after the United States Federal Reserve chairman, Ben Bernanke pledged to keep interest rates on hold "at least through mid-2013." This statement overshadowed Fed’s warning that recovery continued to remain slow. The US markets rebounded sharply, the Dow Jones Industrial Average gained 4.7%, the S&P 500 added 4% and the Nasdaq climbed 5.3%.

Indices across Asia also rocketed upwards, Japan's Nikkei Stock Average advanced 1.2%, China's Shanghai Composite Index added 2% and Hong Kong’s Hang Seng jumped 3.1%. The bounce was led by commodity related shares, exporters and banks. While markets across the world rallied, it lacked the momentum seen on the way down in the past few sessions. Analysts said that the volatility may continue as long as fears on global macro-economic outlook remained.

The cool off in commodity prices seen during the past few sessions will come as a respite for India which is dealing with stubbornly high inflation levels. Economists said that the Reserve Bank of India may pause its tightening cycle after another 25 bps rate hike in September. The industrial output data for the month of June may also set the tone for the markets.

All the sectoral indices were leading the gains. The sectors which dragged the market down were the ones which were helping the markets recapture losses.

The BSE IT index jumped 3.2% on buying spree as valuations became reasonable. Raamdeo Agarwal, Joint-MD from Motilal Oswal said, “Infosys is trading at 17-18x CY P/E (If EPS stays at Rs 130), and the valuations are much more reasonable now.” Infosys was up 3%, HCL Technologies zoomed 5.1%, TCS rallied 4.3% and Patni Computers was up 3.7%.

BSE Realty index also advanced 3% on anticipation that easing commodity prices may put a lid on rising interest rates and inflation. Unitech was up 4%, HDIL added 3.7% and DLF gained 3.3%.

From the broader markets, the BSE midcap and the smallcap indices added almost 2% each.