MUMBAI (Reuters) - The BSE Sensex rose on Thursday, despite losses in other global indexes, as oil stocks rallied on slumping crude prices, while overall sentiment was also bolstered after J.P.Morgan upgraded domestic equities to "overweight."
The fall in Brent to an 18-month low and of U.S. crude futures to an eight-month low is a big relief for a net importer like India, especially given its bloated fiscal and current account deficits and slowing economic growth.
Also on Thursday, J.P.Morgan upgraded its call on Indian equities from "neutral", citing a number of factors including historic valuations, expectations for monetary stimulus, lower oil prices, and a weak rupee.
The upgrade and lower oil prices were a relief on a week marked by disappointment over RBI's decision to keep interest rates unchanged, a Fitch Ratings downgrade of India's sovereign outlook and worries about the global economy.
"If the crude sustains at lower levels then definitely other things like current account deficit will get corrected, and we may even see appreciation of rupee, and that may even translate into lower inflation," said Sunil Jain, head of retail equity research at Nirmal Bang.
The 30-share BSE index rose 0.8 percent to 17,032.56 points, recovering from an earlier fall of as much as 0.6 percent.
The main index rose above the levels on Friday, the trading session before the Reserve Bank of India decision, marking a stronger-than-expected recovery from a decision that had stunned domestic markets.
The broader 50-share NSE index rose 0.87 percent to 5,165.00 points.
Despite Thursday's gains, traders said the outlook for stocks remains uncertain.
The rupee fell to a record low against the dollar, reflecting the global risk aversion and concerns about India's economic and fiscal outlooks.
Global markets weakened on Thursday after the Federal Reserve extended its bond-buying programme by less than some investors had hoped, while China posted weak factory data and the euro zone's private sector showed declines.
The ensuing slump in crude prices is at least helping Indian oil stocks. State-run refiner Hindustan Petroleum Corporation (HPCL.NS) gained 4.2 percent, while producer Oil & Natural Gas Corp (ONGC.NS) rose 1 percent.
Both state-run refiners and explorers in India benefit from lower oil prices because the companies share with the government the burden of selling fuel products at discounted prices, resulting in lower losses when crude prices fall.
Banking shares, as measured by NSE's banking index, rose 2.1 percent, with ICICI Bank (ICBK.NS) up 2 percent and HDFC Bank (HDBK.NS) up 1.6 percent.
J.P.Morgan said it remains "overweight" on private banks, citing "strong" growth in revenues on the back of loan growth momentum, in the note upgrading the country's equities.
Bharat Heavy Electricals (BHEL.NS) advanced 3.6 percent, while Larsen & Toubro (LART.NS) gained 2.2 percent, with both extending gains this week, on hopes the government would impose duties on foreign equipment imports.
However, among decliners, Reliance Industries (RELI.NS) fell 2.5 percent on renewed concerns over gas output after Canada's Niko Resources (NKO.TO) slashed the reserve estimate at the KG D6 gas block, in which both companies hold stakes.
(Additional reporting by Manoj Dharra; Editing by Rafael Nam)