Sensex, Nifty hit record high as lenders extend rally

MUMBAI (Reuters) - The BSE Sensex and Nifty jumped more than 1 percent on Monday to record highs, surpassing their previous all-time highs hit just last week, as lenders including ICICI Bank extended a recent rally on the back of strong foreign investor flows.

The Nifty rose as much as 1.3 percent to a lifetime high of 6,580.90, while the benchmark Sensex touched a record high of 22,046.58, surpassing their previous milestones hit on March 18.

Banks led the gains on optimism about a recovery in the domestic economy tipped to be growing at its lowest pace in a decade, and bets the Reserve Bank of India would keep interest rates on hold for now at its policy review on April 1.

The prospect that the general elections due to conclude by May will usher in a new government led by the opposition Bharatiya Janata Party is also aiding the gains, given market perceptions that the party has a more business-friendly stance.

Foreign investors have been particularly heavy buyers during the rally, with net purchases of $1.6 billion of shares so far this month, regulatory data showed.

"While the euphoria and the run-up in the equity markets driven by foreign inflows are positive, caution is warranted," Radhika Rao, an economist at DBS Bank in Singapore wrote in a note on Monday.

"Inflation risks, high borrowing rates, a weak industrial sector and subdued consumption spending are amongst the main economic challenges facing the next government," Rao added.

The Nifty was up 1.35 percent at 2:35 p.m., while the Sensex was up 1.36 percent.

Banks led the rally, with ICICI Bank surging 3.49 percent and State Bank of India gaining 1.7 percent.

The sector has been one of the top performers this month, with the NSE's bank sub-index gaining about 15 percent so far this month, outperforming the nearly 5 percent gain in the Nifty.

Other blue chips also rose, Reliance Industries rose 1.68 percent while ITC gained 1.74 percent.

(Reporting by Abhishek Vishnoi; Editing by Gopakumar Warrier)