Mumbai, Sep 29 (IANS) From opening deep in the red, key equity indices staged a marked recovery on the back of an unexpectedly high interest rate cut by the Reserve Bank of India and closed in the green on Tuesday.
The two bellweather indices of the Indian equities both gained over 0.60 percent each during the day’s trade.
Uncertainty over the rate cut decision, fears of a hawkish economic outlook and the Reserve Bank’s ability to transmit the easing of monetary policy had subdued the two major bellweather indices of the Indian equity markets.
Even the negative cues from the Asian markets dented sentiments here. Japan’s Nikkei index plunged by 4.05 percent. Hong Kong’s Hang Seng index declined by 2.97 percent, while China’s Shanghai Composite Index receded by 2.06 percent.
Both, the 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) and the wider 50-scrip Nifty of the National Stock Exchange (NSE) were trading more than one percent down just before the policy announcement was made by the Reserve Bank of India (RBI) around 10.55 a.m.
The markets were elated after the monetary easing announcement, and zoomed into the positive territory, seconds after RBI Governor Raghuram Rajan’s announcement of a 50 basis points reduction in key lending rates.
Notwithstanding the more than expected easing, the markets fell on the concerns over the diminished prospects of future rate cuts and disappointing outlook on domestic and global economic scenario.
The RBI revised its growth forecast to 7.4 percent from 7.6 percent and gave cues about firming up of inflationary trends.
Both the indices soon paired their losses and closed in the green. However, the markets lost a major part of its gain in the last hour of trade as investors preferred to book profits.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) closed the day’s trade with gains of 47.60 points or 0.61 percent at 7,843.30 points.
The S&P BSE Sensex which opened at 25,496.38 points, closed at 25,778.66 points — 161.82 points or 0.63 percent up from the previous day’s close at 25,616.84 points.
The Sensex touched a high of 26,054.37 points and a low of 25,287.33 points in the intra-day trade.
Market observers cited that the markets outperformed despite negative global cues, as it welcomed the 50 basis points “booster dosage” coupled with a dovish outlook given by the apex bank.
“The rate cut has been widely welcomed. The markets have perceived it to have come at the right time given the inflation window,” Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
“The 50 basis point cut is expected to support growth and provide the needed credit boost to the economy.”
Nitasha Shankar, vice president of research with YES Securities, said that the markets were elated by the fact that the RBI charted out ways to smoothen transmission of earlier rate cuts by the banks.
“The markets welcomed the fact that the RBI talked about ways for smoothening of transmission of rate cuts by the banks. It mentioned some steps that it can take and the others that the government has to initiate,” Shankar told IANS.
“The comments that the future rate cuts will depend on the ability of the banks to transmit rate cuts and that RBI will maintain accommodative stance also cheered investors.”
An easing of key lending rates is expected to restore investors’ confidence, prop up sales of interest in sensitive sectors like automobile, capital goods and real estate.
Sector-wise, interest rate sensitive stocks like banking, capital goods and automobile witnessed healthy buying support. On the other hand, healthcare, metals and oil and gas scrip came under heavy selling pressure.
The S&P BSE banking index augmented by 176.18 points, automobile index gained by 128.54 points and capital goods index was higher by 96.64 points.
The S&P BSE healthcare index plunged by 157.42 points, metal index receded by 97.03 points and oil and gas index declined by 73.14 points.
Major Sensex gainers during Tuesday’s trade were: HDFC, up 3.46 percent at Rs.1,213.55; Maruti Suzuki, up 3.12 percent at Rs.4,674.75; Mahindra and Mahindra (M&M), up 2.48 percent at Rs.1,251.75; HDFC Bank, up 1.72 percent at Rs.1,064.40; and Coal India, up 1.60 percent at Rs.314.60.
The major Sensex losers were: Vedanta, down 5.43 percent at Rs.86.25; Tata Steel, down 3.87 percent at Rs.201.35; Hindalco Inustries, down 3.54 percent at Rs.68.15; Dr.Reddy’s Lab, down 2.79 percent at Rs.4,075.05; and Sun Pharma, down 1.21 percent at Rs.850.40.