RBI’s policy stance to stay accommodative gave market a shot in the arm today as the Sensex wrested back control of the crucial 27,000-mark by surging more than 232 points to close at an over 7-month high.
As was widely expected by bankers, economists and treasury market experts, the Reserve Bank of India maintained status quo on its policy rate in its second bi-monthly monetary policy review on Tuesday.
Governor Raghuram Rajan cited higher upside risks to the inflation trajectory behind the move, but signalled that the central bank could cut rate provided the data is supportive.
Barring oil & gas, IT and TECk, all other BSE sectoral indices ended in the green. Among them, realty index gained the most by 1.7 per cent, banking 1.63 per cent, consumer durables 1.57 per cent and FMCG 1.35 per cent. On the other hand, oil & gas index was down 0.14 per cent, TECk 0.05 per cent and IT 0.04 per cent.
Top five Sensex gainers were State Bank of India (+5.4%), ICICI Bank (+4.31%),ITC (+1.97%) and Sun Pharma (+1.77%) and HUL (+1.59%), while the major losers were Infosys (-0.78%), Reliance (-0.13%), HDFC (-0.1%), GAIL (-0.07%) and Dr Reddy's (-0.03%).
Monetary policy review
The RBI kept its policy interest rate unchanged at a five-year low of 6.50 percent, while cautiously signalling it could cut rates later this year if monsoon rains, and other factors, dampen upward pressure on food prices.
Analysts said the RBI would likely be open to at least one more 25 basis point rate cut this year after easing the repo rate by 150 bps since January 2015.
“Going by the track record of the RBI, they would perhaps wait for the clarity on monsoons,” said Ravi Gopalakrishnan, head of equities at Canara Robeco Mutual Fund.
“Post-monsoon, we expect 25 basis points cut and by the end of the year another 25 basis points.”
Apart from needing a good monsoon, Rajan's statement said inflation risks could also be offset by astute management of stocks by the government, and by companies increasing supply capacity.
Consumer price inflation rose at a faster-than-expected pace, to 5.39 per cent in April, from 4.83 per cent in March.
Global markets
European shares advanced on Tuesday after Federal Reserve Chair Janet Yellen made no clear reference to the timing of any increase in US interest rates.
The pan-European STOXX Europe 600 and the FTSEurofirst 300 equity indexes were both up 1 per cent by 0736 GMT, extending the previous session’s gains of about 0.3 per cent.
Asian stocks hit a five-week high on Tuesday after US Federal Reserve Chair Janet Yellen gave a largely upbeat assessment on the US economic outlook, while the dollar declined on diminishing expectations of interest rate increases in coming months.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent, taking its gains to 6 per cent in two weeks, as investors judged the Fed’s cautious stance as well-suited to equities.