The Sensex ended above the 32,000-mark for the first time ever and the NSE Nifty closed at a new peak of 9,892 as consumer inflation rate eased to its lowest in five years, cementing hopes for a rate cut.

Retail inflation has raised hopes that the Reserve Bank of India may cut interest rates by 25 basis points at its next policy review on August 1-2.

Domestic sentiment was also buoyed as Asian shares scaled a two-year top after US Federal Reserve chief signalled further rate increases in the United States would be gradual at best.

The 30-share BSE index Sensex settled at a new peak of 32,037.38, up 232.56 points, or 0.73 per cent. The Sensex surpassed its previous record of 31,804.82 touched yesterday. In past four days, the index gained almost 676.75 points.

Similarly, the 50-share NSE index Nifty jumped 75.60 points or 0.77 per cent to close at a fresh lifetime high of 9,891.70, surpassing its record of 9,816.10 hit yesterday.

Among BSE sectoral indices, FMCG index was the star-performer and was up 1.58 per cent, followed by capital goods 1.03 per cent, banking 0.91 per cent and metal 0.78 per cent. On the other hand, oil & gas index was down 0.29 per cent.

Top five Sensex gainers were ITC (+3.03), ICICI Bank (+1.71%), Bharti Airtel (+1.45%), Sun Pharma (+1.26%) and L&T (+1.25%), while the major losers were ONGC (-2.3%), Asian Paints (-0.75%), Tata Motors (-0.55%), M&M (-0.43%) and Coal India (-0.12%).

Factors driving the market momentum

Factory output turned in sluggish numbers in May, while consumer inflation eased to its lowest level since the index’s inception in January 2012, prompting hopes of a rate cut by the Reserve Bank of India (RBI) in its policy review next month.

Consumer price index (CPI)-based inflation eased to 1.54 per cent in June from 2.18 per cent in May as food items such as pulses and vegetables became cheaper. The CPI stood at 5.77 per cent in June 2016.

“The RBI is already under pressure, allegedly even from the finance ministry, to cut rates but I don't think it will be beyond 25 basis points,” said RK Gupta, managing director at Taurus Asset Management.

“Anything more than 25 basis points will put banks under pressure as credit growth is already low.”

Asian shares scaled a two-year top on Thursday as investors wagered policy tightening in the United States would be glacial at best, lifting Wall Street to record peaks and lowering bond yields almost everywhere.

Yet the overall mood was one of relief that Federal Reserve Chair Janet Yellen had not sounded more hawkish in her appearance before Congress, a green light for risk taking.

Unabated inflows by foreign portfolio investors continued to support domestic equity markets. They have pumped over Rs 1,50,000 crore into the domestic markets since January 2017 on several factors, including expectations of accelerated pace of reforms. FPIs had invested around Rs 7,500 crore during the corresponding period last year.

India’s foreign exchange reserve touched a new record high of $386.539 billion after it rose $4.007 billion in the week to June 30, due to an increase in foreign currency assets (FCAs), the RBI said on Friday. In the previous week, the reserves had surged by $576.4 million to reach $382.53 billion.

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