Sensex edges higher, CAG verdict weighs

The BSE Sensex rose a tad on Friday, hitting earlier a five-month high, as ITC recovered from the prior day's falls although power utilities dropped after the Comptroller and Auditor General (CAG) found irregularities in the government's coal allocation and usage.

The auditor accused the government of allocating coal blocks, power projects and land for New Delhi's flagship airport at a fraction of market prices. That sent shares of companies it accused of unduly benefitting, such as Reliance Power , sharply lower.

However, analysts said the impact would likely be limited given the report would mark the beginning of a long process, while the pressure was expected to focus mainly on the government in the near term.

Instead, investors are more focused on potential measures from the government, including on fiscal consolidation and on attracting foreign investment, which are considered critical for stock indexes that this week posted their third consecutive weekly gain.

"I expect some move from the government on reform front as manufacturing is slowing and deficit is growing. There is no choice: government has to do reforms like FDI and passage of insurance bills," said G. Chokkalingam, Executive Director and Chief Investment Officer at Centrum Wealth Management.

The BSE Sensex ended up 0.19 percent at 17,691.08 points on Friday, after earlier hitting its highest since March 16.

The index rose 0.8 percent for the week.

The Nifty rose 0.06 percent to end at 5,366.30 points.

Domestic shares have managed to post mild gains this week, driven by gains in individual shares and sectors, despite renewed worries about inflation after Brent crude futures rallied to three-month highs.

RELIANCE POWER DROPS

Shares in Tata Motors rose 2 percent a day after the auto maker said its global vehicle sales, including for luxury unit Jaguar Land Rover, rose 21 percent in July from a year ago, easing worries about a slowdown in shipments.

ITC rose 1.7 percent, as investors saw Thursday's falls of 3.5 percent, which had been driven by fears about a domestic regulatory crackdown on tobacco, as excessive.

Software service exporter Infosys rose 1.5 percent, after a small, unexpected rise in U.S. jobless claims and a surprise drop in housing starts renewed expectations for a new round of bond purchases from the Federal Reserve.

However, Reliance Power dropped 5.9 percent after the country's federal auditor said the company unduly benefited from a government decision allowing the power producer to use surplus coal from its captive block for another project it was not meant for.

Tata Power slumped 4 percent after the utility was named by one of the auditor reports as having benefitted from a bigger share of land than stipulated by the norms set by a government body.

GMR Infrastructure fell 3.1 percent after the federal auditor also said the government had unduly favoured the a consortium led by the construction company for a contract related to the international airport in New Delhi in 2006.

Additions and deletions from the NSE index were also in focus on Friday.

Lupin rose 2.6 percent while UltraTech Cement added 0.65 percent after the National Stock Exchange added them to its 50-share NSE index, or Nifty.

However, Steel Authority of India fell 1.7 percent, while Sterlite Industries lost 0.7 percent after both were deleted from the index.

The changes will be effective late next month.