By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex rose nearly 1 percent on Wednesday to mark its second straight day of gains on continued foreign inflows, while stocks perceived as defensive gained ahead of the conclusion of the U.S. Federal Reserve meeting later in the day.
Markets expect the U.S. central bank to announce a slight reduction in its $85 billion monthly bond-buying programme, while stressing that interest rates will stay low for a while.
The focus will next shift to Reserve Bank of India's monetary policy review on Friday. Dealers would be interested to see new Governor Raghuram Rajan's stance on the emergency cash tightening steps the central bank initiated in mid-July.
He is expected to leave key policy rates unchanged in his first policy review, continue with the cash tightening measures to stabilise the rupee, and focus on checking runaway inflation, a Reuters poll showed.
"More than the RBI policy, the Fed is in focus because our biggest problem is rupee instability and RBI doesn't have enough balance to support the rupee," said G. Chokkalingam, managing director and chief investment officer at Centrum Wealth Management.
Local monetary policy efforts would be to mitigate damages, if any, due to global developments, Chokkalingam added.
Foreign institutional investors bought $55.44 million worth of Indian shares on Tuesday, data from the markets regulator showed, totalling more than $72 billion rupees worth of buying over the previous nine sessions.
The Sensex rose 0.8 percent, or 158.13 points, to end at 19,962.16, marking its second consecutive day of gains.
The broader Nifty rose 0.84 percent, or 49.25 points, to end at 5,899.45.
Goldman Sachs, however, remains "underweight" on Indian shares in its Asia Pacific portfolio and maintains its NSE index target at 5,700, saying the macro outlook remains challenged, which coupled with tighter financial conditions, may lead to lower valuations.
Shares in consumer goods makers and drug companies, perceived as defensive, gained as anxiety built up ahead of the close of the Federal Open Market Committee (FOMC) meet.
Cigarette maker ITC Ltd
Dr.Reddy's Laboratories Ltd
Ranbaxy Laboratories Ltd
Other pharmaceutical shares gained too. Cipla Ltd
GMR Infrastructure Ltd
Coal India Ltd
JSW Steel Ltd
Among stocks that fell, HCL Technologies Ltd
Non-banking lenders slumped for a second day after the Reserve Bank of India tightened rules for loans against gold on Monday.
Muthoot Finance Ltd
(Editing by Prateek Chatterjee)