Sensex pauses after dream run, but still at record closing high

By Abhishek Vishnoi

MUMBAI (Reuters) - The BSE Sensex edged up on Tuesday to its latest record closing high, managing a fourth consecutive session of gains as domestic-oriented stocks such as Sesa Sterlite continued to rise on hopes tied to the incoming government led by Narendra Modi.

Modi is expected to be sworn in by early next week amid high hopes from markets that his Bharatiya Janata Party will usher in a period of major reforms that would kickstart an economy growing at its slowest in a decade.

In a sign that the rally may be sustainable, midcaps such as property developer Unitech Ltd are also surging, joining the strong gains by domestic-focused companies.

Meanwhile, on Tuesday IT outsourcers such as Infosys Ltd , which had tumbled badly because of a stronger rupee, also recovered.

Still, some analysts urge some caution, given the prospect that the government may fail to meet the high expectations, with broader gains capped on Tuesday as investors also booked profits in recent outperformers such as Coal India Ltd .

"Markets have run up too fast too soon. The biggest challenge for the incoming government would be food inflation and expectations management," said Nobutaka Kitajima, chief investment officer at of equities at LIC Nomura Mutual Fund.

The benchmark BSE Sensex rose 0.06 percent, or 13.83 points, to a record closing high of 24,376.88, although the index remains below the all-time high hit on Friday.

The BSE is now on the verge of moving past Pakistan's Karachi Stock Exchange as Asia's best performing exchange in dollar terms for the year, after gaining 22 percent so far in 2014.

The broader Nifty rose 0.16 percent, or 11.95 points, to end at a record closing high of 7,275.50.

Overseas investors have been a big reason for the gains this year, having bought a net of around $14.3 billion in shares since Modi was declared the BJP's prime ministerial candidate on Sept. 13.

Domestically-led shares continued to lead gains. Sesa Sterlite Ltd SESA.NS surged 7.9 percent while Housing Development Finance Corporation rose 2.6 percent.

The rally is now also covering smaller companies, sending the NSE midcap index to its second consecutive record high on Tuesday.

Among the top performers were Unitech , with a 14.6 percent gain, while Union Bank of India rose 2.4 percent and private insurer Max India surged 6.8 percent.

IT exporters also rebounded after taking a beating in the previous two sessions.

Infosys rose 3.5 percent after falling 7.9 percent in the last two sessions, while Tata Consultancy Services gained 1.6 percent.

Defensive stocks also gained after taking a pounding recently. ITC rose 0.8 percent after falling 8.2 percent over the last two sessions.

However, broad gains were limited by profit-taking in recent outperformers. Coal India shares, which rose 12.6 percent on Monday, are down 5.8 percent, while Oil and Natural Gas Corp Ltd fell 4 percent after gaining 8.5 percent on Monday.

(Editing by Sunil Nair)