(Bloomberg) -- Indian equities reversed early gains after investors sold in a rally that saw key gauges heading for all-time closing highs. The central bank on Thursday extended its rate pause but underlined its inflation focus, denting hopes of any policy easing soon.

The benchmark S&P BSE Sensex ended 0.5% lower at 62,848.64, after a volatile session during which it gained as much as 0.3% to 63,321.40, breaking past the previous record closing high of 63,284.19 in December. The NSE Nifty 50 Index also ended the day lower.  

Equities flirted with record highs on Thursday as global funds, disappointed by China’s uneven recovery, increased holdings of Indian stocks to capitalize on one of the fastest growth rates among major world economies. 

Global investors have bought more than $7 billion of local stocks since March, on track for the biggest quarterly purchases since the end of 2020, as China’s patchy economic recovery also helped boost India’s appeal.

The more than two month-long rally in India may have more legs as Jefferies Financial Group Inc. last month said “it’s a matter of time” until the Sensex hit the 100,000 level. The Reserve Bank of India left its key interest rate unchanged for a second meeting and retained its tightening stance, signaling rate-setters want to see inflation moderate further.

“There have been too many positives for the market in last few days, from economic data to earnings,” said Arun Malhotra, fund manager at CapGrow Capital Advisors LLP. “The rally may take a pause but such declines are more of an opportunity as valuations are yet to rise substantially.”  

India’s stock market has been supported by a stable earnings outlook, and also by a rebound in Adani Group stocks after short seller Hindenburg Research’s report earlier in the year sparked a heavy selloff.

MSCI India Index constituents’ earnings are projected to grow by 11.9% this year, the second-fastest pace in Asia and other emerging markets, according to data compiled by Bloomberg Intelligence.

Data released last week showed India’s economy grew 7.2% in the year to March 2023, higher than the 7% median estimate in a Bloomberg survey. The Finance Ministry expects the economy to expand by 6.5% in the current year, higher than 5.2% forecast for China by the International Monetary Fund.

The Sensex has bounced around 10% after briefly entering correction territory in March. Steady earnings from lenders in the March quarter and bets of a revival in rural consumption are also supporting sentiment in the $3 trillion stock market. 

(Updates details, stock prices.)

©2023 Bloomberg L.P.