Both indexes have gained every day this week to mark their longest winning streak since January, as banks have surged on strong hopes the Reserve Bank of India will cut interest rates this month in a bid to boost faltering domestic growth.
Infrastructure stocks have also been big gainers this week, helping push broader indexes to their highest closes since May 7, after the government promised this week to kickstart projects, starting with roads and airports.
The twin hopes of government action and monetary stimulus have raised the hopes of investors, who have gone from selling on rallies to buying on declines after a tough month of May in which stocks slumped and the rupee fell to a record low against the dollar.
"Government is now getting serious. With the growth story down, hopes are that some more steps will be taken soon," said Neeraj Dewan, director at Quantum Securities.
The main 30-share BSE index rose 0.4 per cent to end at 16,718.87 points after earlier falling as much as 1 per cent. The Sensex gained 4.7 per cent for the week, its biggest weekly gain since early December.
The broader 50-share Nifty rose 0.4 per cent to 5,068.35 points, also advancing 4.7 per cent for the week.
The gains on Friday came despite rising worries about the global economy given the lack of clarity about potential U.S. monetary stimulus, worries China will post weak data on Saturday, and concerns about Spanish banking woes.
Still, some domestic technical indicators are turning more positive, with the NSE index breaking above the 200-day moving average since May 3.
Engineering conglomerate Larsen & Toubro shares gained 2.7 per cent on Friday, adding 15.4 per cent for the week.
L&T and engine maker Cummins India stand to particularly benefit from a government push toward infrastructure as well as potential rate cuts, Deutsche Bank said.
However, Cummins India shares fell 0.3 per cent lower.
Among other infrastructure stocks, IVRCL rose 5.4 per cent and Reliance Infra rose 4.2 per cent on Friday.
Other blue chips seen as under-valued also rose, with Reliance Industries gaining 1.2 per cent.
Banks fell on Friday on profit-taking but still posted strong weekly gains. ICICI Bank fell 0.1 per cent, but still posted a 6.1 per cent gain for the week, its biggest weekly gain since late January.
However, software services exporters stocks fell on worries a weaker global economy would lead to reduced spending from corporations. Infosys fell 1.4 per cent on Friday, ending the week with a gain of 1.3 per cent.
Copyright @Thomson Reuters 2012