Sensex closes at 2-1/2 year high

The Sensex edged higher on Friday to new 2-1/2-year highs as continued hopes for rate cuts bolstered sentiment for blue chips such as ICICI Bank and Larsen & Toubro, although some analysts warned the recent rally could be running out of steam.

Cement makers such as UltraTech rose after an Indian tribunal looking into an appeal on record fines imposed by the competition watchdog ordered them to deposit only 10 percent of those fines for now as it continues its deliberations.

The Nifty gained 1.31 per cent for the week, posting its fifth consecutive week of gains. Data showing easing wholesale inflation on Tuesday has sparked hopes the Reserve Bank of India may cut interest rates as early as next month, after already easing rates three times this year. Strong gains in global share markets have also helped domestic indexes. Foreign investors have been net buyers for 21 consecutive sessions as of Thursday, bringing in a net of about $13 billion in 2013, regulatory data shows.

"Markets have been running up one way, mainly driven by foreign liquidity. There is no big fundamental trigger at this point except for softening of interest rates and inflation," said Deepak Jasani, head of retail research at HDFC Securities.

"In terms of demand and supply scenario, there hasn't been any major improvement so we do expect a correction in the coming few sessions."

The Nifty rose 0.28 per cent, or 17.40 points, to 6,187.30, its highest close since November 2010. The Sensex index gained 0.19 per cent, or 38.79 points, to 20,286.12 points, also marking its highest close since November 2010.

Rate cut hopes continued to boost ICICI Bank Ltd, which rose 1.9 per cent after earlier hitting its highest since November 2010. India's biggest private sector lender has gained almost 6 percent this week.

Larsen & Toubro Ltd rose 1.9 per cent, while Jaiprakash Associates Ltd gained 2.8 per cent.

Ambuja Cements Ltd rose 2.1 per cent, after earlier hitting its highest since May 3. UltraTech Cement was up 0.7 per cent. However, drugmakers fell after the Indian government formally notified a new drug pricing policy designed to increase the number of drugs deemed essential that are subject to price caps.