Private banks lift Indian shares to record closing highs

A man walks past the new logo of the Bombay Stock Exchange (BSE) building in Mumbai

By Bharath Rajeswaran and Kashish Tandon

BENGALURU (Reuters) -Indian shares recovered from a muted start to log record closing highs on Thursday, led by private banks and metals, while a dip in pharma stocks capped gains.

The NSE Nifty 50 settled 0.22% higher at 23,567, while the S&P BSE Sensex added 0.18% to 77,478.93.

The Nifty has logged record closing highs in five out of six sessions, while the Sensex has ended at all-time highs for five consecutive sessions.

Sector rotation towards large-cap banking stocks will likely continue due to their valuation comfort, keeping the benchmarks buoyant, analysts said.

Heavyweight private banks gained 1.16% after Macquarie said it preferred them over other financials, given their stable earnings outlook.

It upgraded Kotak Mahindra Bank and City Union Bank to "outperform" from "neutral", spurring a 1.12% and 5.86% rise, respectively.

The banking sector remains in good health, with expectations of robust loan growth and healthy asset quality boosting its prospects, said Chandraprakash Padiyar, senior fund manager at Tata Mutual Fund.

Metals rose 1.82%, led by a 4.79% gain in Vedanta after a report said top shareholder Vedanta Resources plans to keep its stake in the miner instead of selling it.

In contrast, pharma stocks dropped 0.51%, weighed down by heavyweight Sun Pharma, which fell 2.19% after one of its facilities received a warning letter from the U.S. FDA.

Among other stocks, Brigade Enterprises climbed 1.71%, powering the realty index 2.02% higher, after it signed an $18 million agreement.

Auto parts maker Uno Minda and digital mapping firm CE Info Systems jumped 2.2% and 20%, respectively, after Goldman Sachs initiated coverage on the stocks with a "buy" rating and Street-high price targets.

The more domestically focussed small- and mid-caps gained 0.61% and 0.95%, outperforming the benchmarks.

Despite the rise, investors must reduce their return expectations, given the high valuations and likely moderation in earnings growth across most segments in the market, Tata Mutual Fund's Padiyar said.

(Reporting by Kashish Tandon and Bharath Rajeswaran in Bengaluru; Editing by Janane Venkatraman, Mrigank Dhaniwala and Sonia Cheema)