Amid easing worries about eurozone debt following the European leaders agreeing on a bank recapitalization plan, and on expectations that the Indian government will speed up reforms, the market rallied sharply and ended at its best level in more than two months.
A reduction in petrol prices and the clarification on General Anti-Avoidance Rules also contributed substantially to the market's whopping gains on Friday. Some stock specific stories too aided sentiment to a notable extent.
The BSE benchmark Sensex, which opened with a positive gap of nearly 150 points at 17,134.61 and hit a high of 17,448.48 in late afternoon trade, ended the day with a thumping gain of 439.22 points or 2.59%.
The broader 50-stock Nifty index of the National Stock Exchange ended at 5278.90, slightly off the day's high of 5286.25, with a strong gain of 129.75 points or 2.52%.
According to reports, eurozone leaders have agreed to take action to bring down Italy's and Spain's spiraling borrowing costs and to create a single supervisory body for euro zone banks by the end of this year.
On Thursday, the government issued draft guidelines for implementing the controversial anti-avoidance tax proposal. A panel of seven members suggested that the provisions be applied from 1 April 2013, and that the onus of proving wrongdoing should be on the authorities. The panel has proposed that to avoid the indiscriminate application of the General Anti-Avoidance Rules provisions and to provide relief to small taxpayers.
The panel has suggested that GAAR provisions should be invoked on a foreign institutional investor, if it chooses to take a treaty benefit, but would not in any case be invoked in the case of the non-resident investors of the FII. The panel suggested that the GAAR provisions are meant for cases of tax evasion, not avoidance, or tax mitigation, where a tax payer takes advantage of a fiscal incentive allowed by a tax law.
Capital goods stocks, led by sector heavyweights Larsen & Toubro (the stock jumped thanks to a strong order book) and BHEL, had a nice ride up the charts on Friday. Mirroring their surge, the BSE Capital Goods index moved up by 3.65%.
While Larsen & Toubro ended the day with a gain of 4.2%, BHEL moved up by almost 5%. AIA Engineering, Alstom Projects, Alstom T&D, Bharat Electronics, Jindal Saw, Praj Industries, Punj Lloyd, Siemens and Suzlon Energy gained 2% - 6.5% on Friday. ABB, Crompton Greaves, Havells India and Lakshmi Machine Works also posted strong gains.
Power stocks moved up sharply. Adani Power, GMR Infrastructure, JSW Energy, Lanco Infratech, NTPC, Power Grid Corporation, Reliance Infrastructure, Reliance Power and Tata Power posted impressive gains.
It was a highly rewarding day for stocks from interest rate sensitive banking, realty and automobile sectors as well.
Among bank stocks, heavyweights State Bank of India (3%), ICICI Bank (5%) and HDFC Bank (3%) ended on a high note. Axis Bank, IDBI Bank, IndusInd Bank, Kotak Bank, Punjab National Bank and Yes Bank also ended with impressive gains. Several PSU bank stocks that are not part of the Bankex, too had a good outing on Friday.
Realty stocks DLF, Anant Raj Industries, HDIL, Indiabulls Real Estate, Phoenix Mills and Unitech rallied sharply.
In the automobile space, Hero Motocorp and Mahindra & Mahindra gained around 2.5%, Maruti Suzuki moved up by over 4.5% and Bajaj Auto ended 1.4% up, while Tata Motors closed nearly a percent up. Ashok Leyland gained a little over 1%.
Metal stocks Jindal Steel (8.8%), Tata Steel (3%), Hindalco (4%), Sterlite Industries (up nearly 5%), SAIL (2.6%), Sesa Goa (3.3%), Hindustan Zinc (4.2%) and NMDC (2.4%) ended on a buoyant note.
Reliance Industries (2.6%), ONGC (2.5%), ITC (3%), Cipla (2.85%) and Dr Reddy's Laboratories (2.4%) closed sharply higher. Tata Consultancy Services, HDFC and Infosys gained 1.2% - 1.5%.
Shares of state run oil marketing firms BPCL and Hindustan Petroleum Corporation ended weak. Indian Oil Corporation closed with a modest gain.
Besides several large cap stocks, scores of midcap and smallcap stocks moved higher on Friday. The BSE Midcap index surged 1.62%, while the Smallcap barometer ended 1.3% up.
The market breadth was strong. Out of 2982 stocks traded on BSE, 1864 stocks moved up. 988 stocks declined and 130 stocks ended flat.