Sensex heads towards biggest daily gain in nearly 4 months

MUMBAI (Reuters) - The BSE Sensex rose nearly 2 percent on Friday, heading towards its biggest daily gain in nearly four months on value-buying, after the index closed at its lowest in 6-1/2 months in the previous session.

Stocks heavily owned by foreign investors led the gains after India moved on Thursday to mollify foreign investors who were hit by bills for several years of taxes on previously untaxed gains, triggering a sell-off in financial markets.

Global investors disillusioned by Indian stocks that had been boosted by optimism over financial reforms are shifting their funds to emerging markets such as China, South Korea and Taiwan.

Shares were also on way to snap their three-week losing streak after turning the worst performers in Asia in local currency terms in 2015 so far.

"India has seen some market weakness but still remains one of the best markets for equity investors," said David Kunselman, senior funds manager at the Canada-based Excel Funds Management.

The domestic story is improving, he added.

The Sensex rose as much as 1.92 percent, heading towards its biggest daily gain since Jan. 15.

The Nifty rose as much as 1.83 percent.

Both the indexes are up 0.2 percent on the week.

Indian equities have been weighed down by factors including retrospective taxes on foreign funds, delay in land acquisition bill, relative valuations and global risk aversion in April, as well as so far this month.

India's credit rating is likely to withstand a surge in the sales of shares and bonds by overseas investors triggered by a growing tax row, rating agencies Moody's and Fitch told Reuters on Friday.

Stocks favoured by foreign investors led the gains on Friday, with ICICI Bank rising 4.2 percent and Housing Development and Finance Corp gaining 3.5 percent.

Tata Motors rose 5.4 percent while HDFC Bank was up 1.9 percent.

($1 = 63.9200 rupees)

(Reporting by Abhishek Vishnoi; Editing by Biju Dwarakanath)