The Sensex and the Nifty rallied on the last day of the quarter to post their first weekly rise in six, as lenders gained after the Reserve Bank of India's (RBI) surprise bond purchases were seen helping inject liquidity into the sector.
Banks also benefited from portfolio management as Friday also marked the end of the fiscal year.
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
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.
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.
Sensex up 2%; 9 stocks that featured most on last trading day of FY12
Excellent start to the April series by the Nifty that we can definitely say especially after the Finance Minister clarified on a participatory note issue ahead of the General Anti-Avoidance Rules getting effective from April 1.
India's stock market rallied on the last day of the quarter to post its first weekly rise in six, as lenders gained after the RBI's surprise bond purchases were seen helping inject liquidity into the sector.
The NSE Nifty rallied further, gaining more than 100 points due to buying interest across sectors after Finance Minister Pranab Mukherjee said there was no tax liability on holders of participatory notes. The Indian rupee gaining 49 paise to 50.91 a dollar too helped the market rally.
The BSE Sensex continued to trade sharply higher, majorly supported by Reliance Industries and ICICI Bank with 3% gains each. The Indian rupee gained 30 paise at 51.10 a dollar as the Reserve Bank of India said it would infuse Rs 10,000 crore via open market operations (OMOs) today to alleviate the tight liquidity conditions.
SENSEX-NIFTY-PNOTES-FOREIGN-PRANAB:BSE Sensex gains; foreign tax uncertainty remains
The BSE Sensex surged nearly 300 points after clarifications on promissory-notes issue by Finance Minister Pranab Mukherjee.
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