Reserve Bank holds repo rate at 6%
The Reserve Bank on Thursday kept the key policy rate unchanged at 6% for the fourth consecutive time since August last year, in view of uncertainties around inflation. The Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, had last reduced the benchmark lending rate by 0.25 percentage points to 6% last August, a 6-year low.
MUMBAI: Benchmark equity index Sensex rallied more than 570 points on Thursday to its highest close in three weeks, joining the party in world equities as trade tensions receded, and risk appetite returned.
Investors also cheered the status quo by the Reserve Bank of India (RBI) at its policy review, and as it lowered its April-September inflation projection.
BSE’s 30-share Sensex closed 1.75% or 577.73 points higher at 33,596.80 points, while National Stock Exchange’s 50-share Nifty climbed 1.94% or 196.75 points to close at 10,325.15 points. It was the highest close for Sensex and Nifty since March 15.
Market breadth was positive, as more than three shares advanced for every share that declined on the BSE.
Financials led the gains for Sensex stocks with private lenders ICICI Bank Ltd and HDFC Bank Ltd contributing the most to the index’s gains. They advanced 3.52% and 1.21% respectively.
Foreign institutional investors or FIIs have invested a net of $2 billion in Indian shares so far this year, while domestic institutional investors or DIIs pumped in a net of ₹25,645.44 crore in the asset class.
“The cheer in world markets was the key reason for the rally we saw today. As trade war fears came off, investors heaved a sigh of relief,” said Amar Ambani partner and head of research, IIFL Wealth Management Ltd.
The US and China hinted they were willing to negotiate on rising tensions, helping to ease fears among investors that retaliatory actions could derail the strongest global expansion in years.
“RBI kept rates stable, in line with market expectations. The good part was that RBI lowered inflation target, and this helped the market sentiment,” added Ambani.
Five of the six RBI MPC (Monetary Policy Committee) members voted to keep repo rate - the rate at which the central bank infuses liquidity into the banking system - unchanged at 6%.
Inflation projection for the first half of fiscal 2019 has been slashed to 4.4-4.7% from 5.1-5.6% and second half to 4.4% from 4.5-4.6% projected earlier. The RBI also said that GDP for fiscal 2019 is projected at 7.4% with risks evenly balanced.
“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,” Nomura economists said in a note.
“For now, the RBI remains in wait-and-see mode,” Nomura added. The next focus is on March quarter earnings to be out over the month, and a lot would depend if they register a significant recovery.
“The current correction has come after months of unprecedented rally. It is a routine correction,” said Anand Shah, deputy CEO and head of investments at BNP Paribas Asset Management India Pvt. Ltd.
“It is difficult to predict the course of the market for the current quarter. We expect earnings to pick up significantly in the March quarter, and if that does happen, it will drive the specific sectors and stocks higher,” he added.