Stock markets saw huge volatility on Tuesday as the RBI cut policy rates by 50 basis points.
The BSE Sensex ended the day at 17,357 up 206 points from its previous close. The NSE Nifty ended the day at 5,289.70, up 63 points.
The Sensex opened flat with a positive bias, but shot up post the announcement of the RBI policy. The highest the Sensex touched during the day was 17,381, while the lowest was 17,103. However, the markets lost steam as the RBI was guarded on any further rate cuts, mainly the CRR rate, which remains unchanged at 4.75 per cent.
The 50 basis points increase was surprising as the market was expecting an increase of only 25 bps.
“Surprising the market by higher-than-expected rate cut of 50 bps, the rate trajectory has now indeed taken a southward turn. The cut in rates has been higher than the consensus expectation of 25bps. This was on account of significant growth deceleration and manufacturing inflation having moderated significantly by March 2012,” said Mr Chaitanya Pande – Head Fixed Income, ICICI Prudential AMC.
Banking sector stocks were beaten in the first two hours of trading on Tuesday before the announcement of the RBI policy. At the end of the day, the BSE banking index was up 0.8 per cent.
“This was a bit of a surprise for us, as we were expecting the RBI to cut its policy rate by 25 bps only, given the continued hawkish tone on inflation. In my opinion, the RBI has not fully let down its guard on inflation and the risks of it arising again in the future,” said Mr Indranil Pan, Chief Economist, Kotak Mahindra Bank.
The top five among the Sensex stocks were ONGC, Coal India, Hindalco, DLF and Hero MotoCorp. On the BSE, the realty, metal and PSU sector indices were up by around two per cent each.