Euro Zone Summit, GAAR Guidelines Boost Indian Markets; BSE Sensex Reaches Two-Month High

India's BSE Sensex soared more than 430 points or 2.59 percent to a two-month high of 17448.48 Friday on positive global and domestic cues. The 30-share benchmark index opened at 17134.61 and reached a high of 17448.48 before closing down at 17429.98.

NSE Nifty also registered strong gains and closed at 5268 up 119 points. All the sectoral indices traded in green with capital goods (3.65 percent), power (3.55 percent), banking (3.49 percent), metal (3.44 percent), realty (2.47 percent) and auto (2.18 percent) stocks ending with strong gains.

The CNX Midcap index was up 1.62 percent while the BSE Smallcap index gained 1.3 percent. The market breadth was positive with advances at 1072 against declines of 397 on the NSE.

The markets gained on positive reports from the euro zone and a surge in global markets following the European leaders' decision to lower the borrowing costs of Italy and Spain and create a single supervisory body for euro banks. Europe's major markets gained 2 percent to 2.5 percent while Japan's Nikkei closed 1.5 percent higher and Hong Kong's Hang Seng jumped at 2.2 percent higher.

On the domestic front, the decision of the finance ministry to not apply the retrospective taxing provisions in general anti-avoidance rules (GAAR), for the M&A deals, boosted investor sentiments leading to strong foreign fund flows to the equity market. The draft guidelines released late Thursday night address some of the crucial concerns on the GAAR provisions and also suggest income threshold for invoking the GAAR.

There is some cause for hope. Over the last two days, there have been new people at the finance ministry... Last night, the draft guidelines for GAAR have been out and they seem logical... Markets have been hearing about gloom and doom so far, so given the amount of bad news over the last 30 days, this gives some hopes, Shanti Ekambaram of Kotak Bank told NDTV Profit.

Morgan Stanley upgrading Indian equities from underweight to overweight and also a rally in the rupee against the dollar fueled the Sensex and the Nifty.

ICICI Bank (5 percent), HDFC Bank (2.74 percent), State Bank of India (2.9 percent), Reliance Industries (2.5 percent) and the cigarette major ITC (3 percent) were the major gainers in the Sensex.

Cairn India shares lost 6.11 percent in the Sensex and 6 percent in the Nifty after its erstwhile promoter Cairn Energy sold shares in the open market.