BENGALURU, June 5 (Reuters) - Indian shares rose in volatile trading on Wednesday, as investors digested a narrow win for Prime Minister Narendra Modi's alliance and awaited more updates on the new government's formation.
The NSE Nifty 50 index was up 2.2% at 22,372 points as of 11:26 a.m. IST, and the S&P BSE Sensex was up 2.1% at 73,673. The indexes fell 0.42 and 0.26% earlier in the session.
Modi's Bhartiya Janata Party lost its outright majority in parliament in a surprise election verdict, although the National Democratic Alliance led by the party won 293 seats, more than 20 ahead of the 272 needed to form a government.
The benchmark indexes closed nearly 6% lower on Tuesday.
"The markets will remain choppy till the government is finally formed and key portfolios are allocated," said Neeraj Dewan, director at brokerage Quantum Securities.
Foreign institutional investors (FIIs) sold a record 124.36 billion rupees (about $1.5 billion) worth of Indian shares on Tuesday, provisional data from the National Stock Exchange showed.
Until we have an idea about the policies of the new government, we may see some sector rotations, with defensive sectors like information technology and consumer goods doing better, Dewan said.
Consumer goods stocks surged 6% to a record high, while auto stocks gained 4.2% on expectations of rural demand. IT stocks were up 2.5%.
Two-wheeler maker Hero MotoCorp jumped 8% and was the top gainer in the Nifty, while consumer giant Hindustan Unilever surged 7%.
Meanwhile, state-run companies and state-run banks fell as much as 2.5% each, but trimmed the losses to trade flat, as analysts said reforms like divestment in these companies could face a strong opposition.
The sub-indexes plunged 16% and 15% respectively in the previous session.
Analysts see public sector companies, state-run banks, defence, infrastructure, capital goods coming under pressure due to uncertainties around reforms, but expect consumption-driven stocks doing well on expectations of good monsoons.
Some analysts also said a fall in Indian equities could present an opportunity to buy stocks.
"Broad policy continuity, macroeconomic resilience and strong growth fundamentals should keep relative appeal for Indian equities intact," Goldman Sachs said in a note.
"We also expect foreign flows to return, given this event risk is behind us now, especially in the light of weak flows so far this year and multi-year low foreign positioning," Goldman said.
Reporting by Sethuraman NR in Bengaluru; Editing by Varun H K
Source: Reuters