Foreign portfolio investors (FPIs) were net buyers for the third straight session after the Cabinet approved a higher foreign direct investment (FDI) limit in the insurance sector. A rejig in foreign debt limits reinforced their optimism on the government's reforms agenda, said analysts.
Overseas funds net purchased nearly $47-million shares (R282.44 crore) in the cash market on Thursday, showed provisional data from stock exchanges.
Foreign funds have bought in 11 out of 18 sessions so far this month, taking their tally to $12.1 billion so far this calendar year the second highest among Asian and emerging markets fund flows tracked by Bloomberg.
After trading in a narrow range for most part on Thursday, Sensex rose 0.5% or 124.52 points to end at a new closing high of 26,271.85. Nifty advanced 0.45% or 34.85 points to close at 7,830.60.
Sensex is up 24.1% in dollar terms, beating China's Shanghai Composite (-0.52%), Taiwan Taiex (10.64%), South Korea's Kospi (0.76%), Indonesia's Jakarta Composite (19.29%).
While benchmark indices scaled new peaks, the broader markets remained lacklustre as the Street stays cautious with just five sessions to the derivatives (F&O) expiry. Markets may see increased volatility in the next few sessions, analysts said.
Executive chairman of Templeton Emerging Markets, Mark Mobius, said the rally may pause in near term and markets may see a correction, citing Sensex's price-to-earnings (P/E) valuations of 16.2 times.
There will be another opportunity to go in because after the euphoria you will see the markets correcting, Mobius said in a television interview.
Andrew Holland, Ambit Investment Advisory CEO, said the current rally in the markets is driven by global liquidity. Our markets are helped at the moment by the global liquidity. All mega bids that we are seeing at the moment are in cash segment, Holland said.
Eight of the 12 sectoral indices ended in positive zone on Thursday. Metal stocks were the biggest gainers after macro-economic data on manufacturing from China gave a boost to sentiment for metal producers.
Hindalco was the top gainer (2.3%) in the Sensex-30 companies. Tata Steel rose 2.2% to its highest price since June 9. Steel Authority of India (SAIL) surged 3.5%, the most since July 1. A preliminary Purchasing Managers Index for China rose to 52, exceeding the 51 median estimate of analysts in a Bloomberg survey, according to a report by Markit and HSBC Holdings.
Insurance companies were in the spotlight on Thursday, after the Cabinet approved a higher FDI limit in the sector. Shares of Max India, Reliance Capital, and Sundram Finance climbed in the range of 2-4%.
Apart from metal and insurance companies, IT and FMCG stocks, too, gained on Thursday. Hindustan Unilever (1.55%) and ITC (1.1%), which have a combined 11% weightage on the index, rose for a fourth day.
Thursdays gains were also underpinned by the strength in Asian and European markets. Major Asian indices closed the day with 0.5-1.7% gains. European indices were trading up 0.5-1.4% at the time of going to print.