Bonds, rupee gain in March quarter; outlook uncertain

Bonds rose for a fifth consecutive quarter, while the rupee posted its first gain in four, on optimism sparked by India's economic outlook and rate cuts delivered by the Reserve Bank, but analysts warned momentum could wane.

Foreign investors were the main drivers of Indian markets during the January-March quarter, helped as well by the search for returns amid low interest rates in developed economies.

Overseas funds bought shares and debt worth $13.74 billion this quarter after investing $42.4 billion in 2014, as they look to take advantage of an economy widely expected to grow faster on the back of government reforms.

However, analysts see some of the momentum waning amid uncertainty about how much the Reserve Bank of India will cut interest rates after lowering the repo rate by a total of 50 basis points so far this year.

Concerns the Federal Reserve is moving to raise U.S. interest rates as early as June could also cap gains.

"There have been good inflows, helping the rupee gain in this quarter and the RBI's reserves have swelled as well. The rupee, however, may not continue to gain in a very big way and will likely hold in a range of 61.80 to 63.80," said Hari Chandramgethen, head of foreign exchange trading at South Indian Bank.

The benchmark 10-year bond yield fell 12 basis points in the March quarter to close at 7.74 percent, taking its total fall in the fiscal year 2014/15 to 116 bps.

The partially convertible rupee ended at 62.4950/5050 per dollar and gained around 0.9 percent in the March quarter, snapping three straight quarters of losses.