Indian equity shares rose more than 2.5 per cent on Thursday, marking their biggest daily gain in eight months, after blue-chips led by interest rate-sensitive stocks surged on hopes the central bank's surprise rate cut will stoke growth.
In a surprise move ahead of monetary policy review on February 3, the central bank on Thursday cut the repo rate to 7.75 per cent from 8.0 per cent with immediate effect, while the cash reserve ratio (CRR) was kept unchanged at 4.0 per cent.
The Sensex surged 728.73 points or 2.66 per cent to 28,075.55 and the Nifty jumped 216.60 points or 2.62 per cent to 8,494.15.
Timing of the rate-cut is odd. Is the RBI doing a Fed, in reacting to stock market slide?
— lokeshwarri sk (@lokeshwarri)
Among BSE sectoral indices, realty index was the star-performer and was up 7.99 per cent, followed by banking 3.29 per cent, capital goods 2.4 per cent and auto 2.13 per cent.
Major Sensex gainers were HDFC 7.16%, SBIN 5.02%, ICICI Bank 4.6%, L&T 3.61% and Tata Power 3.55%, while the only two losers were Hindalco (-0.18%) and HUL (-0.05%).
The NSE bank index rose as much as 4.3 per cent to a record high of 19,410.40 after the Reserve Bank of India cut interest rates by 25 basis point and signalled it could cut further, amid cooling inflation and the government's efforts to contain fiscal deficit.
Lower borrowing costs supported by a steep fall in commodity prices, especially crude oil, are expected to boost Prime Minister Narendra Modi's plans to kick-start investments and earnings in Asia's third largest economy.
RBI in its statement said: "To some extent, lower than expected inflation has been enabled by the sharper than expected decline in prices of vegetables and fruits since September, ebbing price pressures in respect of cereals and the large fall in international commodity prices, particularly crude oil. Crude prices, barring geo-political shocks, are expected to remain low over the year. Weak demand conditions have also moderated inflation excluding food and fuel, especially in the reading for December. Finally, the government has reiterated its commitment to adhering to its fiscal deficit target.These factors have significantly reduced the momentum of inflation, compensating for the widely anticipated ending of favourable base effects. Households’ inflation expectations have adapted, and both near-term and longer-term inflation expectations have eased to single digits for the first time since September 2009. Inflation outcomes have fallen significantly below the 8 per cent targeted by January 2015. On current policy settings, inflation is likely to be below 6 per cent by January 2016."
Broker's comment
Reacting to the rate cut, Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mutual Fund, said: “We believe that the current rate cut heralds a shift in monetary stance and creates a case for continued rate cuts in future. Fiscal developments would continue to play a key role in the quantum and timing of future rate cuts too.''
Global markets
European shares rebounded on Thursday, boosted by a bounce in mining and oil companies, as well as by strong results at retailer H&M and Nivea cream-maker Beiersdorf.
The FTSEurofirst 300 index of top European shares was up 1.3 per cent at 1,372.13 points, recouping most of a 1.6 per cent drop on the previous day.
Asian stocks slipped on Thursday after weak US data compounded worries over plunging copper prices and the health of the world economy, while a bounce in crude oil failed to calm anxiety over a supply glut that has seen prices collapse in recent months.
The mood among investors remained subdued after a fourth successive drop on Wall Street overnight, pushing MSCI's broadest index of Asia-Pacific shares outside Japan down 0.2 per cent.
Stocks in Australia, heavily dependent on exports of natural resources, lost 0.7 per cent, though Japan's Nikkei bounced 0.5 per cent.
US retail sales recorded their largest decline in 11 months in December as demand fell almost across the board, tempering expectations for a sharp acceleration in consumer spending in the fourth quarter.