Sensex rebounds from three-month lows; budget awaited

MUMBAI (Reuters) - The BSE Sensex rose on Wednesday, rebounding from three-month lows hit in the previous session, as recent blue chip underperformers such as Larsen & Toubro recovered on value buying a day ahead of the presentation of the union budget for 2013-14.

The BSE Sensex posted its biggest daily gains in a month as investors bet shares were oversold due to cautious expectations that the government will deliver a fiscally disciplined budget on Thursday.

India is likely to hit a fiscal deficit target of 5.3 percent of GDP this year despite a significant shortfall in revenue, the economic survey showed on Wednesday, further boosting hopes for an improvement in federal finances.

Gains in shares were also helped after Federal Reserve Chairman Ben Bernanke defended on Tuesday the U.S. central bank's monetary stimulus, easing worries over a possible early retreat from bond purchases.

"I would caution investors for expecting too much out of the budget and probably would look at some concrete numbers such as fiscal deficit and the path," said Vaibhav Sanghavi, director at Ambit Capital.

The benchmark BSE Sensex rose 0.72 percent, or 137.27 points, to end at 19,152.41, marking its lowest close since January 25. The index ended at its lowest close since November 27 on Tuesday.

The broader Nifty rose 0.62 percent, or 35.55 points, to end at 5,796.90, closing just below the psychologically important 5,800 level.

Despite expectations of a fiscally disciplined budget on Thursday, traders are bracing for a volatile session as markets will grapple with the expiry of February derivative contracts and October-December economic growth data on the same day.

Recent blue chip underperformers recovered on value buying, with ICICI Bank Ltd ending 1.8 percent higher and Larsen & Toubro Ltd rising 3.2 percent.

Bharti Airtel Ltd shares rose 3.2 percent, after already gaining 1.6 percent on Tuesday, on expectations the government will be forced to cut the reserve prices for the remaining auctions of airwaves.

Shares in Jet Airways surged 19 percent on Wednesday after TV channel ET Now cited unidentified sources as saying Etihad Airways was close to a deal to purchase a 24 percent stake in the Indian carrier.

Jet later in the day said Etihad had agreed to pay $70 million for three pairs of the Indian carrier's slots at London's Heathrow Airport, although talks about a potential stake sale were continuing.

However, among decliners, Core Education & Technologies Ltd slumped 45.8 percent, bringing their losses so far this week to 79.8 percent and wiping out 27.38 billion rupees from its market value on unconfirmed fears that shares held by high-net worth individuals were being heavily sold because of margin funding issues, dealers say.

Core Education said in a statement "there is no need for panic" despite the share falls, attributing them to the "regular churn" from an unidentified investor's portfolio, and adding the selling "had nothing to do with the business fundamentals of the Company."

Shares in Ranbaxy Laboratories Ltd fell 4.2 percent, down for a second consecutive session, after India's top drugmaker by sales on Tuesday reported a surprise quarterly loss on product recall charges.

Shares in India's Jubilant Life Sciences Ltd fell 5.4 percent after U.S. health regulators issued a warning letter to the company, citing "significant violations" of manufacturing standards at its facility in Canada.

(Additional reporting by Manoj Dharra; Editing by Anand Basu)