Indian shares rose 0.8 percent on Friday to record their seventh straight weekly rise, their best run in nearly two years, bolstered by strong foreign fund inflows amid growing concerns the market has run up too fast in a short span of time. The benchmark BSE index is up 18 percent this year, mainly on buying by overseas portfolio investors who have pumped in $4.4 billion so far this year, after pulling out more than $500 million in 2011.
Top lenders such as State Bank of India and ICICI Bank were among the top gainers in the day's trading, fuelled by an improved credit demand outlook amid expectations of interest rate cuts by the central bank. Power equipment maker Bharat Heavy Electricals Ltd closed 6.7 percent higher at 303.55 rupees, after rising as much as 14.3 percent to its highest level in three months, as investors bet on a rise in orders this year.
State-run NTPC Ltd plans to award $3.25 billion of equipment orders by March-end after a ruling by India's top court settled a case with a bidder in favour of the country's top power producer, its chairman said on Thursday. The 30-share BSE index closed up 0.75 percent, or 135.36 points, at 18,289.35, its best close in more than six months. Nineteen of its components ended in the positive territory.
"The global liquidity conditions have improved in the last couple of months and India is benefiting from fewer investment opportunities in the developed markets," said Claugio Bernasconi, a Switzerland-based fund manager for AMC Expert India Fund. Technical indicators show the benchmark index could be ripe for a correction as it is deep in "overbought" territory, with its 14-day relative strength index at 77 on Friday. A score of 70 and above is considered overbought.
Citigroup said in a research report the Indian market rally was mainly driven by overseas inflows with "relatively little evidence" of retail participation, though the domestic economy or the corporate sector outlook have not changed much. "We argue that while the macro and the market have moved favourably - the economy/corporate sector have to play catch up, and deliver in earnings, investment, expansion and risk appetite," Citigroup analysts wrote in the research note.
Shares of financials are among the biggest gainers this year, as the Reserve Bank of India (RBI) is widely expected to start cutting interest rates in the quarter beginning April 1 to stimulate the economy. The central bank ran a 20-month interest rate tightening cycle until October to slow down inflation, hitting credit demand and asset quality of banks.
Top lender State Bank of India rose 2.8 percent to 2,417.05 rupees and No 2 ICICI Bank closed with a gain of 1.3 percent at 981.60 rupees. Third-ranked HDFC Bank advanced 0.4 percent, while the sector index rose 1.4 percent. Reliance Communications Ltd rose as much as 4.3 percent. Sources told Reuters the No 2 mobile operator has hired two more banks for the planned $1 billion IPO of its undersea cable unit. The broader 50-share NSE index ended up 0.77 percent at 5,564.30 points. In the broader market, 803 losers were slightly ahead of 671 gainers on relatively strong volume of more than 1.4 billion shares.