Sensex gives 577-pt salute to RBI

The equity markets staged a spectacular rally on Thursday led by bank stocks after the Reserve Bank of India revised downwards its inflation forecast for FY19 while maintaining a bullish outlook on growth. The RBI’s positive outlook on growth inflation dynamics triggered fresh buying in interest rate sensitive sectors.

The Sensex vaulted 577.73 points or 1.75 per cent to end the day at 33,596.80 while the Nifty soared 196.75 points or 1.94 per cent to close the session at 10,325.15. Bank stocks, which went out of favour in recent months due to a spate of scams and asset quality issues stole the limelight of Thursday.

“The status quo on rates and stance is in line with expectations, but the downward revision to inflation forecasts is a positive surprise and suggests no imminent policy tightening,” said Nomura Financial Services. The broader markets also participated in the rally as there were 2,083 stocks that advanced as against 627, which declined.

“There has been consistent improvement in certain macros & important data points like better than expected third quarter GDP, pick up in the manufacturing sector and IIP, excellent auto sales numbers and pick up in credit growth,” noted Devang Mehta, head of equity Centrum Wealth Management.

HDFC Bank’s chief economist Abheek Barua, however, feels that it was “an unexpectedly dovish policy with the RBI highlighting inflation risks (oil, procurement prices, HRA for government employees) but at the same time revising their forecasts downward”.

“If this is a permanent shift in the paradigm of inflation management from a singular focus on bringing long-term inflation down to four per cent to an approach that is more supportive of growth, then the RBI might go for a long pause. However, whether this is a transient bout of dovishness or whether it will endure (especially if one of risks were to surface) remains the key question,” Mr Barua said.

This was an unexpectedly dovish policy with the RBI highlighting inflation risks but at the same time revising their forecasts downward”

— ABHEEK BARUA, HDFC Bank