The BSE benchmark Sensex rose for the third consecutive week, surging by 289 points to close at a fresh 14-month high of 18,752.83 on persistent buying on slew of economic reforms announced by the government, despite rise in retail inflation.
Investors cheered last weekend's big-bang reforms, mainly Foreign Direct Investment (FDI) in retail, power and civil aviation sectors, as well as hiking diesel and LPG prices and assurance of Samajwadi Party to government of its support on a day Trinamool Congress pulled out of the UPA coalition.
On Monday, the Reserve Bank of India (RBI) reduced Cash Reserve Ratio by 0.25% to release Rs. 17,000 crore of primary liquidity into the banking system while kept the key short-term lending rates unchanged in view of risks from inflation.
Brokers said rate-sensitive shares like realty, banking and auto sector attracted buying as the RBI indicated it may cut rates later if inflationary pressures subside. Capital goods, power, metal and refinery also saw demand.
The Sensex also got support since last weekend after the US Fed announced a third round of stimulus measures.
Power, capital goods and metal stocks also led Sensex's rise after the government said withholding tax on overseas borrowings will be slashed to 5% from 20%.
The approval to Rajiv Gandhi Equity Savings Scheme (RGESS) to encourage first-time retail investors to invest in stocks, too lifted the sentiment.
Sensex had resumed higher at 18,619.90 and moved in a wide range of 18,866.87 and 18,291.93 before ending the week at 14-month high of 18,752.83, showing a smart rise of 288.56 points, or 1.56%. The Sensex had ended at 18,871.29 on 25th July 2011.
The Sensex has gained 1,323.27 points or 7.59% in last three weeks.
The NSE 50-share Nifty also rose by 113.50 points or 2.03% to finish at 14-1/2-month high at 5,691.15. It had closed at 5,728.95 on July 7, 2011. It also gained by 432.65 points of 8.22 % in last three weeks.
Volatility ruled the markets this week on account of both local and global events amid short-coverings ahead of the expiry of Futures and Options (F&O) contracts on September 27. The BSE Mid-Cap and BSE Small-Cap indices outperformed the BSE Sensex by rising 3% and 2.81%, respectively, indicating more retail investors participation.
On the global front, Asian and European stocks also ended higher on hopes economic stimulus by central banks.
"Markets rose on back of further policy announcements made by the government on last Friday. The RBI responded to these initiatives by reducing CRR by 0.25%," a broker said.
Persistent capital inflows from foreign funds into equity market also boosted the market sentiment. FIIs were the the net buyers of Rs. 5,731.32 crores in the last week including the provisional figure of September 21.
According to analysts, the government's next policy move after easier foreign investment rules announced last week will dictate the near term trend on the bourses.
Shares of power generation, power distribution and power transmission firms will be in focus on buzz that the government will announce next week, measures aimed at improving the finances of power utilities.
Pharma stock will also be in focus on buzz that the government is set to ease foreign direct investment norms for the pharmaceutical sector.
Meanwhile, the Consumer Price Index (CPI), retail inflation, rose to double digits at 10.03% in August from 9.86% in July on soaring vegetable prices.
Out of the 30-share Sensex pack 20 scrips finished with gains while 10 others ended with losses.
Major gianers from the Sensex pack were Jindal Steel (14.60%), BHEL (13.53%), SBI (12.28%), Bharti Airtel (9.40%), Larsen (6.54%), ICICI Bank (5.85%), Sterlite Ind (5.62%), Tata Power (4.95%), Maruti Suzuki (4.09%), ONGC (4.02%), Mah and Mah (4.00%), Hero Motoco (3.35%), Bajaj Auto (3.24%) and Gail India (3.16%).
However, TCS dropped by 7.69% followed by Dr Reddy's 5.86%, Wipro 3.21%, Coal India 2.73%, HUL 3.26%, Cipla 2.09%, Infosys 1.44% and Sun Pharma 1.26%.
Among the sectoral indices, the BSE-Realty rose by 8.84% followed by Bankex 6.96%, BSE-CG 6.88%, BSE-Power 5.82%, BSE-PSU 4.22%, BSE-Auto 3.26% and BSE-Metal 2.97% while the BSE-IT fell by 3.56%, BSE-HC by 2.18%, BSE-FMCG by 2.05% and BSE-Teck by 1.28%.
The total turnover at BSE and NSE rose to Rs. 10,802.64 crs and Rs. 63,606,56 cr respectively as against the last weekend's level of Rs. 10,663.21 cr and Rs. 49,445.49 cr.
Both the stock exchanges were closed on September 19 on account of "Ganesh Chathrthi".