auto, consumer durable, capital goods, tech and IT sectors firmed up on good buying enquires while metal, power and FMCG shares fell on selling pressure.
Brokers said the sentiment improved following announcement by market regulator SEBI of wide-ranging steps to reform the mutual fund industry and the IPO space.
However, sentiments turned sour towards the weekend after a Comptroller and Auditor General of India (CAG) report named Jindal Steel, Essar Power, Hindalco, Tata Power and Adani Power amongst firms that gained Rs. 1.86 lakh crore from coal blocks allocated on nomination basis.
Two other reports of the government auditor dealt with Delhi airport development and diversion of coal to a private power project in Madhya Pradesh.
The 30-share BSE sensitive index resumed slightly down at 17,551.69 and dropped to a low of 17,522.10 but recovered sharply on Friday to a fresh five-month high of 17,801.39 on renewed hopes of rate cut by the Reserve Bank, following lower-than-expected fall in July inflation numbers.
However, the index dipped to settle the week at 17,691.08 after the CAG said private firms are likely to have gained about Rs. 1.86 lakh crore from coal blocks allocated on nomination basis, which amounted to notional loss to national exchequer.
The index was still up 133.34 points, or 0.76 %. The Sensex has gained 851.89 points, or 5.06 %, in the last three weeks.
The NSE 50-share Nifty also rose by 45.90 points, or 0.86 %, to finish at 5,366.30. The Nifty has gained 266.45 points, or 5.22 %, over the last three weeks.
The government data showed inflation declined to 6.87 % in July. This was the first time the price rate fell below 7 % in over 30 months, but the number was still above than the apex bank's comfortable level.
"Inflation number was lower than Street estimates. This moderation raises expectation for some monetary easing steps," said Milan Bavishi, Head Research, Inventure Growth and Securities.
The Foreign Institutional Investors (FIIs) were net buyers of Rs. 1,085.02 crore, as per the SEBI's data, including the provisional figure of August 17.
Kishor Ostwal, CMD, CNI Research Ltd, said, "CAG reports seemed to have spoilt the bull party but we believe it is a trend for the market to close on Friday on a weaker note ahead of a good session. The Nifty has closed above 5,360, which is very strong level.
"It can correct at the most till 5,300 in the current situation where there is a very strong support. On upside, it seems 5,500 is capped for the settlement unless the call value shifts from 5,500 to 5,600. The next eight trading sessions need to be watched carefully."
"The strategy for next eight sessions should be - buy on dips and sell on rise - as the market may see volatility between 5,300 and 5,500 due to orthodox roll over system.
"In absence of liquidity in September series, the volatility is must for shifting the positions from August to September. Those with high leveraging will see problem on either side whereas those with lower or nil leveraging will enjoy buy on dips," Ostwal added.
Shares of Tata Motors rose by 3.64 % after reports said the company's global sales rose. Maruti settled higher by 1.16 % after it announced that production will resume at Manesar plant from August 21.
However, the ITC dropped by 2.20 % on reports that Australia's tough new anti-tobacco marketing laws, which among others ban logos on cigarette packs, may be see similar action in India as well.
Other gainers from Sensex pack were RIL (4.23 %), M&M (3.85 %), HDFC (3.24 %), Bharti Airtel (2.48 %), Infosys (1.65 %), Dr Reddy (1.47 %) and Cipla (1.43 %) and Wipro (1.23 %,) while Hindalco Ind fell by 7.21 % followed by Tata Power 2.60 %, Sunpharma 2.21 %, NTPC 2.09 %, Jindal Steel 2.00 %, GAIL 1.92 %, Tata Steel 1.40 % and HDFC Bank 1.14 %.
Among the sectoral indices, the BSE-Oil&Gas shot up by 2.30 % followed by BSE-IPO 2.20 %, BSE-Auto 1.80 %, BSE-CD 1.75 %, BSE-CG 1.44 %, BSE-Teck 1.32 % and BSE-IT 1.25 %, while the BSE-Metal dropped by 1.84 % and BSE-Power by 1.10 %.
The total turnover, in the shortened week due to holiday on August 15 for 'Independence Day', at BSE and the NSE fell to Rs. 8,355.78 crore and Rs. 38,697.93 crore, respectively from the last weekend's level of Rs. 10,603.40 crore and Rs. 51,611.93 crore.
The rupee surrendered most of its last week's gain and depreciated by 45 paise to end the shortened week at 55.73 against the Greenback following fresh dollar demand from importers and some banks amid firm dollar overseas after mid-week.
However, sustained capital inflows and firm local stocks restricted the rupee fall to some extent, a forex dealer said.
The Forex market was closed on August 15, 2012 for observing 'Independence Day'.
At the Interbank Foreign Exchange (Forex) market, the domestic unit resumed slightly better at 55.25 a dollar from last weekend's close of 55.28 and improved further to a high of 55.19 on Monday on sustained dollar selling by exporters and continued capital inflows, while weak dollar overseas also helped the rupee to firm up at early stages.
However, it turned weak on dollar demand from importers, mainly oil refiners, at the fag-end of Monday's trading and remained in negative terrain till Thursday.
It crossed the 56-mark to an intra-trade low of 56.04 on Thursday after nearly two-week before concluding at 55.73, showing a fall of 45 paise or 0.81 %.
The Indian benchmark Sensex closed up by over 133 points, or 0.76 %, extending gains for the third straight week.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said, "The beginning for INR was flat to firm note but turned into weakness towards the mid week and ended on weak note. The week witnessed some major economic numbers from India hitting the market except the WPI numbers all infused sheer disappointment.
"The July WPI numbers beat the expectations and came in at 6.87% against the hopes of of 7.30 % which eased some of the pressure on RBI but dwindling exports at a faster pace than imports resulted in the widening of the July trade deficit to $ 15.5 billion against $ 14.8 billion YoY."
"The process of revising the growth forecasts lower has been official now after the Economic advisor to PMO and the Centre for Monitoring Indian Economy (CMIE) scaled down FY13 GDP growth forecast to 6.7% on poor monsoon.
"A deficient monsoon is expected to pull down farm sector growth rate to 0.5% in 2012-13. In such a bleak economic situation the INR maintained its strengthening stance on the back of positive cues from global markets.
"The rising foreign capital flows has been negating the weakness in INR due to poor economic performance supported by abundantly available liquidity seeking avenues for risk on investments," he added.
"For the coming week Importers can wait for the INR to appreciate around 54.50 - 55.00 levels for partial hedging for their payments which we expect to be achieved on a move below 55.30 levels.
"A complete long Hedge can be created around 54.00 levels for medium term payments. Exporters can use the weakness towards 56.30 levels to initiate a short hedge with a stop loss above 57.00 levels as to cover their receipts.
"The crucial levels for INR appreciation are 55.30 levels as a move below the same shall extend gains and for depreciation the 56.70 levels can be closely watched as rise above 56.70 levels shall weaken the pair till 57.20 - 58.00 levels," he added.
Abhishek Goenka, Founder & CEO, India Forex Advisors said," Rupee has entered into a new normal and may remain in the broad range of 53.50-60 levels in 2012-2013. The fundamentals have gone structurally weak for Asian markets due to a slowdown in US, Europe, UK and China.
"The fiscal deficit and supply side inflation pressures may elevate incase we do not see any concrete government action. The BOP numbers may turn alarming if we cannot rope in permanent capital soon.
"The local pair may also remain weak for most of the year since that would be a significant tool to rope in more flows and promote exports on similar lines of Japan, Korea in 70's and China in the 90's -2000 who also maintained artificial weakness to promote exports".
The RBI fixed the reference rate for US dollar and euro at Rs. 55.7023 and Rs. 68.8510 from Rs. 55.3440 and 68.0425 last weekend, respectively.
The rupee premium for the forward dollar ended mixed on alternate bouts of buying and selling.
The benchmark six-month forward dollar payable in January closed lower at 171-173 paise from last weekend's level of 176-178 paise, while far-forward contract maturing in July finished slighly higher at 326-328 paise from 325-327 paise last weekend.
The rupee fell back sharply against Pound Sterling to close the week at 87.48 from preceding weekend's close of 86.25 and also dropped against the euro to 68.88 from 67.81.
However, it moved up further against the Japanese yen to 70.17 per 100 yen from last weekend's level of 70.48.
Oil and oilseeds
Barring linseedoil ruling stable, both edible and non-edible oils surged at the oils and oilseeds market during the week under review.
Groundnut oil prices surged on consistent demand from stockists and retailers amidst higher export offtake and well supported by ongoing festivities.
Refined palmolein also moved up on good buying by retailers.
Castorseeds bold and castoroil commercial prices zoomed hectic demand from shippers and soap manufacturers on the back of lower arrivals.
Castorseeds futures also jumped on sustained speculative demand following bullish export inquiries.
Linseedoil prices maintained a stable trend in the absence of any market moving factors.
The market was closed on Thursday for 'Independence Day'.
In the edible oils segment, groundnut oil opened steady at Rs. 1,220 and strengthened further to close at Rs. 1,250 from preceding weekend's level of Rs. 1,220 per 10 kg. Showing a rise of Rs. 30 per 10 kg.
Refined palmolein resumed slightly higher at Rs. 608, later moved down to Rs. 605 before gaining to end at Rs. 610 from last weekend's level of Rs. 607, registering a modest gain of Rs. 3 per 10 kg.
In the non-edible section, castorseeds bold resumed lower at Rs. 3,850, later shot up sharply to close at Rs. 4,325 from last weekend's level of Rs. 3,900, a net gain of Rs. 425 per 100 kg.
Castoroil commercial also opened down at Rs. 800, but later advanced to finish at Rs. 895 from its previous weekend's level of Rs. 810, a smart gain of Rs. 85 per 10 kg.
Linseed oil ruled steady at Rs. 830 per 10 kg throughout the week.
Moving to the futures section, castorseeds for September delivery resumed lower at Rs. 4,200 and drifted to 4,170 before rebounding to conclude at 4,680 from last Saturday's closing level of Rs. 4,280 showing a sharp gain of Rs. 400 per tonne.