Nifty, Sensex surge nearly 2 percent, gain most in over three months

By Abhishek Vishnoi

MUMBAI (Reuters) - The BSE Sensex and Nifty Indian shares surged nearly 2 percent on Thursday, posting their biggest daily gain in over three months, on hopes foreign buying would continue as country can better weather any Fed-related volatility due to improving fundamentals.

Traders said a report from news channel Zee Business that Standard & Poor's would raise its rating on India had also boosted shares. S&P officials were not immediately reachable for comment.

However, analysts say a full grade upgrade is unlikely given that India is at a "negative" outlook, meaning any move would likely first involve changing this to "stable."

The strong gains on Thursday made India an outlier given most other emerging Asian markets fell after the U.S. Federal Reserve suggested it could raise interest rates faster than expected when it starts increasing, although it renewed its pledge to keep borrowing costs low for a "considerable time."

Traders cited speculation of strong inflows into India, with investors noting the country could better weather any Fed-related volatility due to a recovery in domestic economy and the government's efforts to rein in deficit.

"India outperformed because we are the best stock market story in the world at this point. There is not many who can match our growth, stability and returns at this point," said Nirakar Pradhan, chief investment officer at Future Generali India Life Insurance.

The BSE Sensex rose 1.81 percent, or 480.92 points, to end at 27,112.21, marking its second consecutive day of gains.

The Nifty rose 1.75 percent, or 139.25 points, to end at 8,114.75, closing above the psychologically important 8,100 level.

Both the indexes marked their biggest daily gain since June 2. That contrasted sharply with the 0.5 percent fall in MSCI Asia-Pacific ex-Japan.

Foreign portfolio investors have been the key drivers behind indexes that hit their record highs on Sept. 8, having bought a net $14.14 billion in shares so far this year, according to regulatory data.

Blue-chips led the gains. Larsen & Toubro Ltd rose 3.6 percent, while Tata Motors ended 3.6 percent higher.

Housing Development Finance Corp rose 3.4 percent and ICICI Bank gained 2.3 percent.

Zee Entertainment Enterprises Ltd surged 5.4 percent ahead of its inclusion in the NSE index on Friday.

Among other large-cap gainers, Reliance Industries rose 1.6 percent, while Tata Consultancy Services gained 2 percent.

Sun Pharmaceutical Industries gained 1.6 percent after Merck & Co Inc said it had licensed its experimental psoriasis drug to the company.

Cloud solutions provider 8K Miles Software Services jumped 10 percent to an all-time high of 390.50 rupees after Sundaram BNP Paribas bought 175,000 shares via a block deal.

However, among stocks that fell, ABB India ended 0.8 percent down on profit-taking after rising 6.3 percent in the previous session.

(Editing by Anand Basu)