Indian stocks soar 17% on election

MUMBAI (Reuters) -- India's main stock index leapt more than 17% on Monday for its biggest single-day gain in almost two decades, after the ruling coalition sealed a decisive election victory that calmed fears of political uncertainty.

The rupee soared more than 3% to five-month highs against the dollar, its best one-day rise in more than a decade, and bond yields fell as the win boosted hopes a strong coalition which would be able to push through economic reforms that would boost foreign investment.

Prime Minister Manmohan Singh's Congress-led coalition eyed possible new allies and needed just 10 seats for a parliamentary majority, rare in a country used to unwieldy coalitions.

A strong coalition, free of the pressures from its former Communist partners, has boosted the prospect of reforms to encourage growth in Asia's third-largest economy, analysts said.

Investors cheered the victory by sending the market up nearly 15% within seconds of opening, triggering circuit breakers that halted trade for two hours.

A final circuit breaker was set off almost immediately after trading resumed, halting trade for the rest of the day. But overall volume was light at just 13.3 million shares, against a daily average of 400 million in 2009.

"Clients want to buy. They have nothing else to say," said R. Sriram, a technical analyst at ICICI Securities.

"There are still a lot of short positions pending. Investors will bang their boots and come in to cover them. There could be another circuit breaker," he said.

The 30-share BSE index jumped 17.34%, or 2,110.79 points, to 14,284.21 points, for its highest close since Sept. 11. Trade was finally halted for the day before noon.

The day's percentage rise was the biggest since a 20.8% jump on March 2, 1992 when Singh, who was then finance minister, unveiled reforms that opened the economy to foreigners.

Morgan Stanley raised its end 2009 target for the BSE index to 15,300 points, a rise of 7% from current levels, saying Indian companies would benefit from the election victory.

"We, now believe, that there is greater probability of our bull case rather than our bear case," analysts Ridham Desai and Sheela Rathi wrote in a note.

Still, after the hefty rally, there were words of caution.

"In the short term, sellers will come in, as ultimately economics will have to come in play," said Jayesh Shroff, fund manager at SBI Capital Markets, when the euphoria fades.

"This event probably does open up meaningful possibilities, but there's a lot to do, and there could be a lot in the way," Aditya Narain, an analyst at Citigroup Global Markets, said.

Macquarie Research said its top picks were leading mobile operator Bharti Airtel, state-run energy equipment maker Bharat Heavy Electricals, mortgage firm Housing Development Finance Corp., diversified Grasim Industries and conglomerate Larsen and Toubro.

Shares in these companies rose between 14% and 33 % on Monday.

The 50-share NSE index leapt 17.74 % to 4,323.15.