The bulk of gains came on the final trading day of the week after the governments decision to raise domestic natural gas prices to $8.4 per million metric British thermal unit (mmBtu) enthused investors.
The governments ability to push through the tough decision of raising gas prices reinforced confidence among FIIs, who were net sellers of Indian equities for the last 12 consecutive sessions. On Friday, however, FIIs were net buyers of $189.41 million. For the week, FIIs remained net sellers at $520 million against $844.5 million in the previous week and $430.8 in the week prior to that, Bloomberg data show.
The Sensex ended the day at 19,395.81, up 519.86 points, or 2.75%, while the Nifty settled at 5,842.20, up 159.85 points, or 2.81%. Both indices posted their biggest single-day jump in nearly two years, when the Sensex and Nifty had soared 568 points 172 points, respectively.
Oil & gas stocks posted sharp gains in response to Thursday's policy decision. We see Oil India, ONGC and RIL as the key beneficiaries of higher domestic gas prices... We see manageable impact on power and fertiliser sectors from higher domestic gas prices, said Sanjeev Prasad, MD and co-head, Kotak Institutional Equities.
Broader markets also breathed a sigh of relief, after taking a beating in the previous two weeks. The BSE Mid-Cap and Small-Cap indices gained 2.3% and 1.4% on Friday, after having lost 5% and 7%, respectively. Investors were also relieved to see a turn in the Indian currency on the final trading day of the week, with the rupee rebounding strongly on Friday to close at 59.39/$ after hitting a record low earlier in the week.
For the last one year or so, the FIIs have been looking for policy decisions that signal reforming of the Indian economy... If that continues to happen, like it did on Thursday and in the second half of CY12, FIIs will continue to invest undeterred despite the fall in Indian currency, said an equities dealer of a US-based financial services firm.
Gains in global equities also backed the turnaround in Indian markets. According to Bloomberg data, major Asian indices such as the Nikkei, Hang Seng, FTSE Strait Times, Taiex and Kospi gained 1-4% (in dollar terms) this week. Major European and US indices have gained 1-3% this week at the time of going to print.