Sensex heads for second weekly gain after govt defends reforms

MUMBAI (Reuters) - The BSE Sensex rose on Friday, on track for a second weekly gain, led by lenders such as State Bank of India after the government defended its reforms approach and on continued hopes the Reserve Bank would lower interest rates in June.

Indian stocks have become one of the worst performing markets among Asian equities in 2015 so far due to the slow pace of reforms and concerns around retrospective taxation of foreign investors.

The central government on Thursday defended its approach to reforms, days after it succumbed to political pressure in parliament and delayed the passage of key land and tax reforms, a move that has tarnished Prime Minister Narendra Modi's first year in office.

Banks were also helped by moderation in bad loan ratios of some of the state-run lenders for Jan-March, even as RBI governor Raghuram Rajan on Thursday said India's bad loans situation may not have peaked yet.

"Government is moving towards right direction on reforms; the pace can be different though in coming times," said Pankaj Murarka, head of equities at Axis Mutual Fund.

The benchmark BSE Sensex rose 0.5 percent, while the broader Nifty gained 0.44 percent.

Both the indexes were also headed for their second straight weekly gain with both the Nifty and the BSE Sensex on track for a 0.9 percent gain on the week as of 2:33 p.m.

Gains were also helped by Asian shares that were trading higher ahead of U.S. data later in the session, which is expected to give clues on the timing of an interest rate hike by the U.S. Federal Reserve.

Financial stocks led the gains. State Bank of India rose 2.3 percent while Housing Development Finance Corporation gained 2 percent.

Axis Bank was up 1.5 percent and Kotak Mahindra Bank advanced 1.6 percent.

($1 = 63.9200 rupees)

(Reporting by Abhishek Vishnoi; Editing by Biju Dwarakanath)