BSE Sensex gains on fund buying; blue chips rise

By Indulal PM

MUMBAI (Reuters) - The BSE Sensex edged up on Thursday as blue chips from Infosys to BHEL extended a rally on continued strong buying by foreign investors, although volumes were thin in a holiday-shortened week.

Foreign institutional investors (FIIs) have been net buyers in almost every session so far this month, bringing their net purchases to around $2.4 billion in December and of nearly $20 billion for the calendar year.

The gains came even after the Federal Reserve last week announced the start of a gradual scaledown in bond purchases.

Still, analysts warned that continued concerns about the domestic economy, which is stuck in what some analysts call a stagflationary environment of low growth but high inflation, could cap broader gains.

"We expect markets to trade range-bound in the short- to medium-term. Investors need to take a balanced approach as on one hand, we have concerns over inflation and growth but improving (current) account deficit numbers and expectation of further policy reforms are positive," said Dipen Shah, head of private client group research at Kotak Securities.

"We advise clients to be selective and get into good defensive stocks in the consumer or technology sector."

The Sensex closed up 0.2 percent at 21,074.59, while the Nifty ended higher 0.17 percent at 6,278.90.

Blue chips were among the leading gainers, with Infosys rising 1 percent, bringing its advance for the month to 5 percent after hitting a record high on Friday.

Some laggards earlier in the year are also ending 2013 strongly. Bharat Heavy Electricals gained 1.1 percent and is up 11.8 percent so far in December, heading for a fourth consecutive monthly gain.

Meanwhile, state-run oil marketing companies gained after media reports, including newspaper Business Standard, said the petroleum and natural gas ministry was planning to propose a hike of 5 rupees in diesel prices.

Shares of Indian Oil Corp rose 0.7 percent, while Bharat Petroleum Corp gained 1.9 percent.

Axis Bank gained 1.1 percent after the federal cabinet approved raising foreign investment limit to 62 percent from 49 percent.

Shares in Adani Power gained 3.13 percent after the company said its board approved the demerger of transmission line business.

(Reporting by Indulal PM; Editing by Subhranshu Sahu)