Even as the global markets remained weak, domestic stocks ended marginally higher on Friday on expectations that the implementation of the Seventh Pay Commission recommendations would boost domestic consumption.
While the S&P BSE Sensex gained 26 points to close at 25,868 points, the 50-share Nifty ended at 7,856 points, up 13 points.
In the afternoon session, the Sensex rose nearly 200 points but could not sustain the gains as investors resorted to profit booking in FMCG, realty and banking stocks. The index was up 380 points in the previous session.
The Seventh Pay Commission, headed by Justice AK Mathur, recommended a 16% hike in basic salary and a 63% increase in allowances for government employees, taking the overall hike in salaries to 23.55%. The Commission submitted its report to Finance Minister Arun Jaitley on Thursday and the recommendations are likely to be implemented from 1 January, 2016.
Auto, consumer durable and real estate stocks traded higher on the Bombay Stock Exchange (BSE).
"The seventh Central Pay Commission report should result in a large consumption stimulus for the economy in FY2017-18... We expect automobiles, consumer durables and real estate sectors to benefit from the largesse," said Sanjeev Prasad of Kotak Equities.
But some analysts have raised concerns over the additional burden on the government's finances as and when the proposals are implemented. The government could cut spending in other areas to offset the impact of salary hikes on its wage bill, analysts said.
"A recommended 23.55% increase in remuneration for India's central government employees, if fully implemented, would have a significant impact on the government's wage bill, and add to challenges the government faces in achieving fiscal consolidation targets," said Fitch Ratings.
"The government could seek to cut expenditures in other areas," it said.
On the sectoral front, Oil & Gas, Capital Goods and IT indices were the top gainers. Gas stocks soared after the media reports said that the Qatar-based RasGas has decided to revise its long-term contract with Petronet LNG.
"Media reports have cited that RasGas of Qatar and Petronet LNG are renegotiating contract for the long-term sourcing of LNG. The formula tweaking, if it happens, will bring down the price of long term LNG, which is currently 50% more expensive than spot LNG," said Amar Ambani, Head of Research, IIFL.
Following the reports, GAIL shares jumped over 10% to close at Rs 348 on the BSE.
On the commodity front, gold prices rose Rs 120 to end at Rs 25,900 per 10 grams, while silver went up by Rs 100 to close at Rs 34,300 per kg.