Indian shares rose on Friday, led by gains in oil companies, as hopes of sustained foreign institutional inflows strengthened after the government yesterday allowed oil marketing companies to increase diesel prices in small doses.
The optimism helped the Sensex close above the psychologically crucial 20,000 for the first time in two years.
The BSE Sensex ended at 20,039.04, up 75.01 points or 0.38 per cent, after rising almost a per cent earlier in the day. The NSE Nifty closed at 6,064.40, up 25.20 points or 0.42 per cent.
Fund managers said the government's move to allow oil companies to gradually raise diesel prices over the next few months lifted sentiment. But the euphoria was tempered after investors found that the real impact of the measures on the economy's finances would be seen only by next year. Also, investors are concerned if the government would be in a position to fully allow fuel prices increases, ahead of 2014 elections. Toral Munshi, director & head India research, Credit Suisse Wealth Management, said: "Now, implementation will be the key, which will provide conviction to the market."
Weakness in the broader market on Friday was another indicator of the recent rally losing steam. Losers outnumbered gainers 1,331:971 on the BSE, suggesting investors and traders may be cutting a portion of their holdings in mid- and small-cap stocks. Sankaran Naren, chief investment officer, ICICI Prudential Mutual Fund, said: "The market rally is losing steam because of the impending public issues for which investors are raising cash to invest."
Foreign portfolio flows are showing no signs of fatigue. FIIs net-bought shares worth Rs 1,65.69 crore, extending their buying spree in the nation's equities to almost Rs 15,000 crore or $2.5 billion, in 2013. These investors poured almost $25 billion into the stock markets in 2012.
Fund managers and analysts said the government's recent policy moves to revive the economy and to repair its finances, coupled with optimism about earnings recovery, was prompting foreign investors to go bullish on India.