Indian shares hit a new six-month closing high on Friday, led by refinery stocks which rallied after a government decision to increase local retail fuel prices. But bonds fell to two-year lows on that same decision, which is expected to fuel inflation and weighed on a money market already grappling with tight liquidity caused by a pick-up in loans and a slew of fresh government debt issues.
The 30-issue Mumbai share index rose 1 percent to 5,891.36 points, its best close since April 23, with the market's mood lifted by a sparkling debut from India's top power producer, National Thermal Power Corporation Ltd.
NTPC leapt 22 percent from its 62-rupee offer price to 75.55 rupees, as investors bet on strong demand for energy in India.
Analysts said the government's much-delayed increase in petrol and diesel prices late on Thursday would boost the profit margins of oil retailers.
State-run oil refiner and petroleum retailer Hindustan Petroleum Corporation Ltd surged 7.2 percent and Bharat Petroleum Corporation Ltd climbed 11.7 percent.
"The price increase is a big positive for distribution companies and we expect more gains in these stocks," said New Delhi-based K.K. Mittal, a fund manager with Escorts Mutual Fund.
But rising fuel prices fed fears of slower vehicle sales growth after two years of strong demand. Maruti Udyog Ltd, India's top car maker, fell 0.4 percent and Hero Honda Motors Ltd, the top motorbike maker, shed 1.3 percent.
The benchmark 10-year bond yield rose by a quarter of a percentage point to 7.1881 percent, its highest level since August 2002.
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