Dovish statements by the Federal Reserve officials and a liquidity move by the Reserve Bank of India (RBI) helped domestic indices log their best weekly gain in more than two months.
Gaining for a fifth day, the Sensex ended the session at 66,599, a gain of 333 points or 0.5 per cent. The Nifty ended the session at 19,820, up 93 points or 0.5 per cent. For the week, the Sensex and Nifty rose nearly 2 per cent each, the best weekly gain since the end of June.
Banking stocks rose after the RBI announced that it would discontinue the incremental cash reserve ratio (I-CRR) in a phased manner. The central bank will release the amount which banks maintained under I-CRR in stages.
The I-CRR was introduced to absorb excess liquidity generated due to various factors.
“The Nifty has been gaining strength and is inching closer towards its life high of 19,992. With monsoon gradually improving and India set to host the G20 summit over the weekend, sentiments are buoyant and may lift the market towards its life high and 20,000-mark over the next few days,” said Siddhartha Khemka, head of retail research at Motilal Oswal.
The Nifty, which logged its lifetime highs on 20 July, is now less than a per cent away from a new high. The mid-and small-cap indices have already made their fresh highs.
The market cap of BSE-listed companies made a new high of Rs 321 trillion (almost $3.9 trillion) on Friday.
The dovish comments from Federal Reserve officials revived speculation that the central bank may keep interest rates at current levels.
On Thursday, the Federal Bank of New York President, John Williams, said the US monetary policy is in a good place and is having the desired effects of bringing demand and supply more into balance and easing inflation.
Williams added that the Fed has "done a lot" by raising interest rates significantly, and officials must calibrate policy if needed to ensure they are bringing inflation sustainably down to their 2 per cent goal.
Federal Reserve Bank of Dallas President, Lorie Logan, said that an interest-rate hike at the US central bank's upcoming policy meeting may be appropriate.
On Friday, Chicago Fed President, Austan Goolsbee, said we are approaching a time when the argument is not going to be how high the rates should go but how long they need to be kept at this level before one is sure we are on the path back to the inflation target.
The Federal Open Market Committee lifted its benchmark rate in July to a range of 5.25 to 5.5 per cent, the highest level in 22 years, after holding it in June.
Though the Fed has not ruled out the possibility of another rate increase this year, they are slowing the pace of their rate hikes.
The Fed is expected to hold rates when they meet on 19-20 September.
"Markets may take a breather after the recent surge, but the tone is likely to remain positive. In case of any dip, we expect Nifty to respect 19,650 now. Since all sectors are now participating in the move, we recommend focusing on stocks, which are showing relatively higher strength within the sector,” said Ajit Mishra, vice-president of technical research at Religare Broking.
Two-thirds of Sensex stocks gained. HDFC Bank gained 0.8 per cent and contributed the most to Sensex gains.
The Bank Nifty index rose 0.6 per cent, and the India Vix index dipped 0.85 per cent to 10.78.
The market breadth was positive, with 1,983 stocks advancing and 1,711 declining on the BSE.
Foreign portfolio investors were net sellers to the tune of Rs 758 crore on Friday, according to provisional data from exchanges.