Shares jumped by more than two per cent on Wednesday to post their best gain in nearly three months, as companies with big rural sales rose after a private weather forecaster predicted more monsoon rains than initially estimated.
National Stock Exchange (NSE)'s Nifty ended 2.40 per cent higher at 7,934.90, while Sensex rose 2.28 per cent to close at 25,881.17.
Both the indexes posted their best percentage gain since March 01 as agriculture-related stocks jumped on better monsoon expectations.
Market expert, Sunil Shah, said that a good monsoon could infuse life back into the country's sluggish rural economy.
"Last two monsoons have been very bad. We had a deficit monsoon that had made huge negative impact on the rural economy. That was reflected on the demand patterns of our country. I mean, the consumption was less. Now if this monsoon turns out to be as forecasted, above average monsoon, we will see huge demand, rural demand especially, which in turn will move the wheels of this economy faster," said Shah.
Monsoon rains are expected to be 109 per cent above the long-term average, compared with its earlier estimate of 105 per cent, Skymet, a private forecaster, said on Tuesday, adding that the June monsoon rains were seen at 87 per cent of long-period average.
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Above-average monsoon plays a key role in boosting demand for an array of consumer goods, as a percentage of the population lives in villages.
Another market expert, Akash Jindal, backed Shah.
"The Indian economy is a rural-based economy and if rural demand is generated, then it could lead to a very good growth of India's Gross Domestic Product. I think we saw a good impact of the same today," said Jindal.
He added that other factors such as increase in crude oil prices and global investment bank Morgan Stanley upgrading India's rating had contributed to the gain.
In an earlier forecast, Skymet had said that the El Nino effect is likely to wane after monsoon hits the southern Kerala coast by the end of May.
El Nino, or warming of sea-surface temperatures in the Pacific, can lead to scorching weather conditions across Asia and east Africa, but heavy rains and floods in South America.
West coast and central parts are expected to receive enough rainfall, bringing in relief for farmers and policy makers, who are struggling with droughts and severe water scarcity in some regions.
India Meteorological Department's (IMD) forecast too has predicted an above average monsoon for the country.