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The benchmark BSE Sensex recovered by 617 points during the week on fresh buying mainly in capital goods, metal, banking and power sectors on easing of infrastructure financing norms by the RBI coupled with easing of inflation.
The decline in prices provided space for the Reserve Bank to cut interest rates in next month's policy review to revive economic growth.
Retail inflation in June touched its lowest at 7.31 per cent since January 2012 and the wholesale Price Index slid to four-month low of 5.43 per cent mainly on easing of vegetables prices.
The apex bank eased financing norms for infrastructure development and affordable housing, exempting long-term bonds from mandatory regulatory norms like CRR and SLR if the money raised is used for funding of such projects, which boosted the shares from interest rates related segments.
Metal and mining counters too were in demand after a report showed that China's economy expanded in second quarter.
Revival of monsoon amid growth in merchandise exports in June 2014 and fall in global crude oil prices also kept the market tempo upbeat.
Country's exports grew by 10.22 per cent in June this year while imports rose by 8.33 per cent.
The Sensex open higher at 25,093.16 and hovered in a wide range of 24,892.00 and 25,713.40 before settling the week at 25,641.56, disclosing a sharp gain of 617.21 points or 2.47 per cent.
The CNX 50-share Nifty also rose by 204.30 points or 2.74 per cent to end at 7,663.90.
However, the market has been slightly affected on concerns over geopolitical tension after news that Malaysian Airlines jet downed at the Ukraine-Russia border.
Quarterly results, especially from IT majors, were above estimates and improved sentiments," said Dipen Shah, Head- Private Client Group Research, Kotak Securities.
Meanwhile, foreign portfolio investors (FPIs) bought shares worth a net Rs 2,527.76 crore during the week as per SEBI's data including the provisional figure of July 18.
Major gainers from the Sensex pack were Tata Steel (12.19 pct), Hindalco (10.87 pct), Axis Bank (9.91 pct), ICICI Bank (8.97 pct), Larsen (7.09 pct), Tata Motors (6.67 pct), BHEL (6.51 pct), SBI (5.78 pct), Tata Power (3.83 pct), ONGC (3.65 pct), Coal India (3.56 pct), Hero MotoCorp (3.03 pct), HDFC Bank (2.50 pct), TCS (1.86 pct), SSLT (1.62 pct) and RIL (1.00 pct).
However, HUL 2.95 pct, Bajaj Auto 2.28 pct, Dr Reddy's Lab 2.24 pct, Infosys 2.18 pct and Gail