Indian shares rise on GAAR delay; outlook weak

India's main indexes rose for the first session in four on Monday, led by gains in capital goods and banking stocks, after a controversial set of provisions on taxation for foreign investors were deferred by a year.

Finance Minister Pranab Mukherjee told parliament the General Anti-Avoidance Rule would be delayed until fiscal 2013-14 and added the burden of proving tax evasion will lie with the authorities rather than with overseas investors.

Indian shares cut losses after the news, despite a day marked by a steep global risk-off trade following elections in Greece and France that sent the MSCI index of Asia Pacific shares outside Japan down 2%.

Although the news was seen soothing major worries   flows, analysts said India's steep economic and fiscal challenges would likely continue to weigh on stocks.

"The GAAR issue was an overhang on the market, and is now clearly behind us," said Kaushik Dani, fund manager at Peerless Mutual Fund in Mumbai.

"Near-term flows will depend upon how corporate earnings season shape up in next weeks, and also industrial output and inflation data will determine the trend."

The 30-share BSE index rose 0.48% to 16,912.71 points, after earlier falling as much as 1.9%.

The 50-share NSE index added 0.54% to 5,114.15 points.

The controversy over the GAAR provisions, along with worries over India's economic and fiscal challenges, had weighed heavily on domestic stocks, which had fallen 3.6% since they were announced as part of the fiscal 2013 budget in mid-March.

Foreign investors had also turned net sellers of about $142 million in April, compared to net purchases of $9 billion in the January-March quarter, according to Macquarie, which warned India was facing the prospect of negative 12-month forward returns as a result of the outflows.

Capital goods stocks were among the leading gainers, Larsen& Toubro surging 4.9% and Bharat Heavy Electricals gaining 6%

Banks also rose, with State Bank of India ending up1.6%, while ICICI Bank added 1.8%.

Lenders, which had been strong gainers at the start of 2012,had seen shares drop in May, with the NSE bank index down over 4.6% for the month as of Friday, compared to a 3% fall in the Nifty.

Among other gainers, state-run Indian oil companies rallied on hopes for a hike in diesel prices and the slump in Brent crude prices. Bharat Petroleum Corp rose 5.2%.

Shares in India's Maruti Suzuki rose 2.3% after the company raised prices for its Swift Dzire models on May 1 by 8,000 to 12,000 rupees. A company spokeswoman confirmed the new pricing.

But among decliners, kitchenware maker TTK Prestige slumped 13.7% after January-March results out on Friday missed analyst estimates.

IRB Infrastructure Developers dropped 7.11%, extending a two day slide, after Goldman Sachs downgraded the stock to "neutral" from "buy."

The downgrade, and the slide in shares, comes after the company announced three executives have agreed to take a polygraph test, connected to the police investigation of the 2010 murder of a man described as an anti-corruption activist.