Sensex, Nifty rally on banks; quarter ends with worries

Including Friday's gains, the banking sector surged 28 percent for the quarter, making it one of the top performing sectors from January to March.

The RBI stepped in on Friday to buy up to 100 billion rupees of bonds through open market operations on Friday, in what was a surprise move.

"Bond yields are down on OMOs, which of course is helping the banking stocks," said Sandeep J. Shah, CEO of Sampriti Capital.

"RBI will continue to help in (the) future if liquidity is tight or bond yields run away"

The main 30-share BSE index surged 2 percent to 17,404.20 points, its biggest daily gain since March 9. The 50-share NSE index rose 2.3 percent.

For the quarter, the SENSEX index rose 12.6 percent, slightly outperforming the MSCI Asia-Pacific index excluding Japan.

Still, despite the strong gains in the last day of the quarter, they reflect what has been a volatile March.

The budget for fiscal 2012/13 disappointed investors, with higher-than-borrowing plans raising fears that the central bank would have to delay interest rate cuts.

This week, markets were hit by fears the government would impose taxes on foreign investors, who have bought a net of 460 billion rupees so far in 2012, with unclear comments from Finance Minister Pranab Mukherjee on Friday further muddling the picture.

A Reuters poll conducted over the past week showed investors still expect the Sensex to end the year at 19,500 points, for a gain of 26 percent for calendar 2012, but respondents expressed their growing worries.

"The markets would be volatile in the short term as uncertainties from global and domestic front are emerging in bits and pieces at regular intervals," said Madhumita Ghosh at Unicon Securities.

Among gainers on Friday, ICICI Bank rose 4 percent and HDFC rose 1.9 percent.

Technology outsourcing stocks recovered from steep losses in the previous session after the U.S. Consulate in Chennai denied local market reports of a hike in the cost of H-1B visa fees.

Infosys rose 2.7 percent after falling 1.8 percent on Thursday, while Tata Consultancy gained 2.4 percent.

The gains helped boost a technology sector that has struggled in the past quarter due to worries over earnings, with the sub-index gaining about 6 percent to become one of the laggards in the past three months, along with the oil and gas sector.