Mumbai (AFP) - Indian shares jumped to their highest-ever trading level Friday, beating the previous record set in 2008, fuelled by strong foreign fund inflows and an easing of both global and domestic economic concerns.
The Bombay Stock Exchange benchmark Sensex hit a new high of 21,293.88 points in morning trade on Dhanteras day, part of the five-day Hindu festival of lights called Diwali.
The index's previous intraday record high was 21,206.77 points on January 10, 2008.
The Sensex retraced later on profit taking to end at a new record close of 21,196.81 points.
Sentiment has been improving across Asian markets over hopes that the US central bank may delay plans to start tapering its massive stimulus programme.
India's market has been sluggish for most of 2013, due to an outflow of foreign funds over fears of an end to the US programme, while the country's slowing economic growth, weak rupee and high trade deficit also weighed.
But with global and domestic fears beginning to ease, investments are starting to flow in again.
Foreign funds pumped $2.55 billion into Indian equities in October, taking their total purchases to $16.48 billion for 2013, regulatory figures showed Friday.
"This rally has been fuelled by an avalanche of global liquidity into emerging markets, after the reprieve by the US Fed as far as the US tapering plan goes," said Ajay Bodke, head investment strategist with Mumbai brokerage Prabhudas Lilladher.
Local sentiment has improved as several Indian firms, including IT and auto giants, have reported better-than-expected earnings data for the September-ended quarter.
Warning against 'excessive exuberance'
India's Finance Minister P.Chidambaram Friday warned investors against "excessive exuberance" despite being confident that the country's current account deficit may narrow, as exports improve and investments into India rise.
"The markets seem to be happy but I would caution investors against excessive exuberance," Chidambaram told reporters in New Delhi.
Chidambaram said he was confident that India's current account deficit -- the broadest measure of trade -- could be contained at $60 billion this fiscal, from an earlier figure of $70 billion.
The appointment in September of renowned economist Raghuram Rajan as India's new central bank governor also appears to have helped sentiment, analysts say.
Rajan, a former International Monetary Fund chief economist, has outlined a plan to boost investor confidence, fight high inflation and support the ailing rupee.
The rupee, which was one of the worst performing Asian currencies this year, has started to stabilise, gaining more than 10 percent against the dollar from its record low of 68.85 in August.
Rajan has been hawkish in his stance on inflation, which remains above the bank's comfort levels, by raising interest rates in his two monetary policy meetings since taking office.
India's annual inflation jumped to a seven-month-high of 6.46 percent for the month of September, led by surging food and fuel prices.
But analysts such as Bodke hope that consumer prices could start to ease soon, thanks to a good monsoon, giving the central bank room to cut rates and spur growth, something business leaders have been calling for.
India recorded five percent growth last year, the slowest in a decade, and far below the levels of eight to nine percent that it enjoyed in recent years.
Economists remain concerned that the rupee, though stable now, may come under pressure in coming weeks when the central bank eventually ends a temporary facility it opened to sell dollars directly to state-run oil firms.
Fears of fresh outflows once the US Fed commences tapering off its stimulus programme also remain.
"I would call this an illusionary rally. There are some roadblocks ahead in terms of valuations and economic fundamentals," said Jigar Shah, India's head of research for Kim Eng Securities.
The Congress party-led government of Prime Minister Manmohan Singh is anxious both to tame inflation and to revive the economy as it seeks a third term in office, with elections due by next May.
Foreign investors are eyeing the 2014 elections with hopes that a new government could announce more plans to boost reforms and investments into key areas such as infrastructure and banking.