The BSE Sensex ended up slightly on Monday after rising to a record high for a third consecutive session as strong foreign buying continued to boost domestic-focused shares such as those of HDFC Bank, but momentum waned as exporters slumped on a stronger currency.
Sentiment remains supported after foreign investors bought a net 25.77 billion rupees of shares on Friday, their biggest daily purchases since December 9. That marked a 16th consecutive buying session for a net total of about $1.4 billion.
Overseas investors are also building up long positions in NSE futures across indexes, especially in banks, in an indication they could be betting on a sustained record-setting gain, according to traders.
But shares are seen susceptible to profit-taking, especially if consumer inflation data for February, due on Wednesday, rises more than expected. That would dent expectations that the Reserve Bank of India would keep interest rates on hold at its policy review on April 1.
A Reuters poll showed annual retail price inflation is expected to have eased to 8.35 per cent last month, the slowest in two years, from 8.79 per cent in January.
"Definitely profit-taking would happen in some sectors, but this break above 22,000 on Sensex has happened after a lot of years and the uptrend therefore will remain intact," said G Chokkalingam, founder of research and fund advisory company Equinomics
The BSE Sensex rose 0.07 per cent, or 15.04 points, to close at 21,934.83. It earlier hit an all-time high at 22,023.98.
Nifty rose 0.16 per cent, or 10.60 points, to end at 6,537.25. The index also marked a record high of 6,562.20, marking its second consecutive all-time high.
Both indexes have gained for a fifth consecutive session. Monday's modest gains came amid a 1.2 per cent fall in MSCI's broadest index of Asia-Pacific shares outside Japan, which was hit by concerns about worsening Chinese trade data.
For the month, India's BSE index is the second-largest gainer in Asia in dollar terms, after Pakistan.
Analysts say gains are driven by foreign investors switching from exporters to domestic-focused sectors on hopes for an improving economy and as the opposition Bharatiya Janata Party, led by its prime ministerial candidate Narendra Modi, are tipped to win the general elections that conclude in May.
Construction company Larsen and Toubro surged 3.19 per cent, while carmaker Maruti Suzuki India Ltd ended 3.8 per cent higher.
Private sector lenders surged, with HDFC Bank up 3.23 per cent and Kotak Mahindra Bank Ltd jumping 5.7 per cent.
Morgan Stanley has turned "overweight" across all private sector lenders in India, after previously keeping that stance for only HDFC Bank, Housing Development Finance Corp Ltd , ICICI Bank Ltd, and Axis Bank Ltd.
Reliance Industries Ltd rose 1.9 per cent, adding to Friday's 5.7 per cent gain, after KG-D6 block partner BP Plc highlighted recent discoveries in two blocks as "potentially commercial" in its annual report out on Thursday.
However, exporters fell, with Tata Consultancy Services Ltd losing 3.9 per cent and Dr.Reddy's Laboratories Ltd dropping 1.4 per cent, reversing last year's trend of foreign investors betting big on drugmakers and software services exporters.
The falls were also led by an Indian rupee that has strengthened 1.1 per cent this month against the dollar as of Friday on the back of strong foreign flows.
Shares of metal companies also plunged after data on Saturday showed China's exports unexpectedly tumbled in February, raising fears of a slowdown in the world's second-largest economy.
Hindalco Industries Ltd fell 2.1 per cent. Steel Authority of India lost 2.5 per cent, while Tata Steel ended 1.9 per cent lower.
The rupee rallied to its highest level in seven months on Monday as foreign investors continued to buy into both equities and debt, even as most other Asian currencies fell after surprisingly weak Chinese trade data.
Strong dollar selling by custodian banks on behalf of foreign investors forced exporters to also step up their greenback sales.
However, momentum could wane in the near-term for the rupee ahead of consumer inflation and industrial output data due on Wednesday. Trade data could also be released this week, although no date has been fixed yet.
"The rupee initially was caught between the U.S. non-farm payrolls data and the Chinese trade numbers but custodian banks started selling aggressively in late trade," said Pramod Patil, head of foreign exchange and fixed income trading at United Overseas Bank.
The partially convertible rupee closed at 60.85/86 per dollar compared with 61.08/09 on Friday. The unit rose as high as 60.79, its strongest since August 12.
The rupee benefited after Indian shares again hit all-time highs on Monday, although both the Sensex and Nifty indexes ended the day with only slight gains.
Foreign investors bought a net 25.77 billion rupees of shares on Friday, their biggest daily purchase since December 9. That marked their 16th consecutive buying session for a net total of about $1.4 billion.
For the year, overseas funds have bought a net $852.10 million in equities and $5.6 billion in debt.
The gains contrasted with falls in most Asian currencies on Monday after Chinese trade data added to worries of a slowdown in the world's second-largest economy.
In days ahead, traders broadly expect the rupee to move in a 60.65 to 61.65 range during the week with oil importers expected to step up dollar purchases at lower rupee levels.
In the offshore non-deliverable forwards, the one-month contract was at 61.23 while the three-month was at 61.89.