Sept. 30 (Bloomberg) -- Indian stocks rose for the second day, driving the benchmark index to a 16-month high. Financial companies led gains after a government official said the economy will expand 7 percent in the current fiscal year.

State Bank of India Ltd., the nation’s biggest lender, added 4.9 percent after Arvind Virmani, chief economic adviser to the Ministry of Finance, yesterday said increased corporate tax revenue indicated India had begun to emerge from the global recession. Oil India Ltd., the second-largest state-owned energy explorer, advanced 8.7 percent on its trading debut.

“The risk appetite of investors has increased, they are more confident now,” said Vaibhav Sanghavi, a director at Ambit Capital Ltd. in Mumbai, who manages funds for wealthy individuals. “The markets are in a bull run for a long period.”

The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 273.93, or 1.6 percent, to 17,126.84. The index closed at its highest since May 21, 2008, and gained 18 percent in the third quarter, its third-straight three-month period of gains, the longest winning streak since December 2007.

The S&P CNX Nifty Index on the National Stock Exchange climbed 1.5 percent to 5,083.95. The BSE 200 Index gained 1.4 percent to 2,094.94.

State Bank rose 4.9 percent to 2,194.95 rupees, its highest since Feb. 20, 2008. ICICI Bank Ltd., the second-biggest lender, jumped 4.8 percent to 907.6 rupees, a 16-month high. HDFC Bank Ltd., the third-biggest lender, climbed 2.4 percent to 1,650.5 rupees, its highest since Jan. 16, 2008.

Growth Forecasts

Virmani’s 7 percent growth forecast for the year ending March 31 is higher than the prediction of 6.3 percent by Montek Singh Ahluwalia, deputy chairman of the Planning Commission, a government agency that sets economic and investment targets, on Sept. 1. The economy expanded 6.7 percent in the preceding 12 months.

Taxes paid by Indian companies more than doubled in the three months through September, a finance ministry official said Sept. 22, declining to be identified. Companies make advance tax payments once every three months, based on their estimates of income for the quarter.

Sterlite gained 3.5 percent to 776.1 rupees, a 20-month high. January-delivery copper rose as much as 3.6 percent on the Shanghai Futures Exchange, while three-month copper gained as much as 3.3 percent on the London Metal Exchange.

Oil India gained 8.7 percent to 1,141.2 rupees. The state- run explorer, which raised 27.8 billion rupees ($578 million) in an initial public offering, started trading at 1,105 rupees. The company sold shares at 1,050 rupees.

‘Fresh Buying’

“We like the Oil India scrip, fundamentally,” said Anu Jain, vice president at IIFL Wealth Management in Mumbai, which manages $470 million in assets for wealthy clients. “We can see fresh buying and short covering, which can take the Nifty to the 5,150 level. Small caps and mid-caps are likely to outperform the broader market.”

Tata Consultancy Services Ltd., India’s biggest software services exporter, rose to its highest in almost 2 1/2 years after it won a contract from Singapore’s People’s Association, according to a statement from the company. The stock added 1.7 percent to 621 rupees.

Larsen & Toubro Ltd., the No. 1 engineering company, gained 2.4 percent to 1,689.2 rupees after it said it has the capacity to build 3,000 to 4,000 megawatts of nuclear power every year and is seeking contracts to build complete atomic power stations, Chairman and Managing Director A.M. Naik told reporters in New Delhi yesterday.

‘First to Market’

Wockhardt Ltd., an Indian drugmaker, rose to its highest level in more than a year after saying it got preliminary U.S. approval to sell its drug for the treatment of prostate enlargement. The shares climbed 7.2 percent to 194.15 rupees.

“They will get the advantage of being the first to market in the U.S.,” said Bhawana Verma, a Mumbai-based analyst at KR Choksey Shares & Securities Ltd., who recommends investors hold the shares. “This is a very good improvement for the company.”

Overseas funds bought a net 33.1 billion rupees of Indian stocks on Sept. 25, the nation’s market regulator said on its Web site. Global investors have bought a net 575.1 billion rupees of stocks since Jan. 1, compared with record net sales of 530 billion rupees for the whole of 2008.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

Last Updated: September 30, 2009 07:29 EDT