Interest rate sensitive stocks, such as banking, auto and realty, gained up to 2% in late morning trade after RBI slashed short term lending rate by 0.50%, a development that will lead to cuts in the cost of home, auto and corporate loans.
The stock market, which was anticipating a 25 basis points cut in interest rates, cheered the RBI moved and gained momentum as the BSE benchmark index Sensex surged over 200 points soon after the announcement.
Shares of SBI rose 1.44%, ICICI Bank - 1.13%, HDFC Bank - 0.26%, Canara Bank - 1.32% and Yes Bank - 0.73%. Following the surge in these stocks, the BSE banking index gained 0.79% to 12,123.66.
"RBI rate cut was ahead of market expectations as we hoped for a 25 bps cut in the rates. This is a very positive trigger for the markets. Going forward we may see more buying interest rate sensitive stocks," Geojit BNP Paribas Research Head Alex Matthews said.
In the realty space, DLF was up 1.63%, HDIL -3.51% and Unitech - 2%. The gains pushed the BSE realty index 1.67% to 1,811.18.
Among auto stocks, Hero MotoCorp was trading 1.34% higher, Apollo Tyres rose 1.85% and Bajaj Auto climbed 0.77%. The BSE auto index was quoting 0.49% up at 10,338.90.
After a gap of three years, Reserve Bank Governor D Subbarao on Tuesday slashed short term lending rate by 0.50% to 8%, a move that will reduce the cost of home, auto and corporate loans.
The reduction in the repo rate at which RBI lends to banks, has been prompted by deceleration in growth and softening of inflation.
After two consecutive cuts since January, the governor, however, retained the cash reserve ratio at 4.75%.