After a sharp sell-off in the past two months, overseas investors were once again seen turning bullish on Indian equities.
FIIs bought shares worth Rs 63.5 billion in the past five sessions, their highest weekly investment tally in many months.
Sundar Sethuraman reports.
The benchmark indices posted their third straight weekly gains, after investor sentiment improved following a sharp drop in crude oil prices.
Stability in the rupee saw foreign institutional investors turn net buyers on all five trading sessions of the week.
The Sensex gained 0.6% or 197 points to 35,457, while the Nifty rose 0.6% or 65.5 points to 10,682, led by gains in index heavyweight Reliance Industries and HDFC.
Meanwhile, YES Bank dropped 7% after analysts raised concerns on the stock, following O P Bhatt's resignation from the search panel to find a new chief executive officer.
Analysts say the latest surge in the markets has been triggered by a slide in the price of crude. Brent crude oil tumbled 22% from to $66 a barrel from $86 a barrel at the start of October.
Experts said the drop in oil prices has significantly eased the macroeconomic headwinds for India.
"India's macroeconomic position appears to have stabilised with crude prices slipping to below $70 per barrel. We see stable rupee and interest rates and a manageable fiscal position over the next few months if crude oil prices were to remain below $75 per barrel," says Sanjeev Prasad, managing director and co-head, Kotak Institutional Equities.
The rupee on Friday ended at 71.92 against the dollar, gaining over 3% from its all-time low of 74.4.
The yield for the 10-year benchmark government security softened to 7.81% from a high of 8.18% on September 11.
After a sharp sell-off in the past two months, overseas investors were once again seen turning bullish on Indian equities. FIIs bought shares worth Rs 63.5 billion in the past five sessions, their highest weekly investment tally in many months.
"Stability in rupee and oil prices will provide direction to the market despite election-led uncertainty," says Vinod Nair, head of research, Geojit Financial Services.
Eleven out of the 19 sectoral indices of the BSE gained on Friday.
"Macroeconomic factors have started to turn in favour of corporates. Massive fall in crude oil and the rise in rupee will have a double impact on the cost structures, it will boost companies such as OMCs, aviation and paints. Indian indices have quickly adjusted themselves to such macro dynamics and have been rising since the past three weeks," says Jimeet Modi, founder and CEO, SAMCO Securities
Shares of companies for whom crude oil is a key raw material have gained in recent weeks.
The benchmark indices, which gained more than 6% in the past three weeks, still trade 9% below their 2018 highs touched in August.
Prasad says the Indian market valuations are still on the higher side despite.
"Also, the valuations already factor in 15% and 26% growth in net profits of the Nifty-50 Index for FY2019 and FY2020. We find decent value in a few sectors and stocks in financials, energy, metals and mining and power utilities, but do not find value in the 'quality' stocks," says Prasad.
"Also, it remains to be seen the high multiples will hold up in the event of tighter global monetary condition and higher bond yields," Prasad adds.
The Nifty currently trades at nearly 17 times its one-year forward earnings estimate compared to historical average of about 15.5 times.