India’s benchmark stock indices surged near 1% on Tuesday after the Reserve Bank of India kept key rates unchanged as it keeps an eye on inflation, while maintaining an “accommodative” stance. Strong global cues following US Federal Reserve chairperson Janet Yellen’s cautious views on interest rate hikes also boosted investor sentiments.
The Bombay Stock Exchange’s Sensex closed at 27,009.67, up 232 points or 0.9%. The Sensex has breached the 27,000 level for the first time since October 29. The NSE Nifty50 too gained 65 points or 0.8% to end at 8,266.45.
“RBI maintaining status quo helped Indian markets to resume the uptrend, and follow global markets seemingly energised by Yellen’s statement suggesting lower chances of a US rate hike. However, gains were capped, with Governor maintaining a mildly hawkish stance in its statement, pointing towards stiff inflation, and the potential impact of Brexit,” said Anand James, chief market strategist, Geojit BNP Paribas Financial Services.
The RBI kept the benchmark repo rate unchanged at a five-year low of 6.5% on Tuesday. The central bank has cut interest rates by 150 basis points since January 2015, including a 25 bps cut in its last policy announcement in April.
While domestic conditions for growth were improving gradually, the inflation surprise in April, makes the future trajectory of inflation “somewhat uncertain,” the RBI said.
“Overall, there were no real surprises, except for the upside risk to inflation highlighted by the RBI in this policy. However, its policy stance remains accommodative with a focus on transmission i.e. it will continue to refine its liquidity management framework,” said Saravana Kumar, chief investment officer, LIC Mutual Fund.
Market gains were led by banking stocks. State Bank of India surged 5.4% and ICICI Bank gained 4.3%. Federal Bank also accelerated 5.5%.
Other bluechip stocks like ITC, Sun Pharma, Hindustan Unilever, Larsen & Toubro were also among the big gainers.
Globally, sentiments were positive as US Federal Reserve chairperson Janet Yellen remained cautious after disappointing US employment data, which suggest that the Fed may not be in a hurry to hike interest rates further.
Most Asian markets ended up with the Hong Kong’s Hang Seng surging 1.50%, Korean Kospi up 1.3% and Japan’s Nikkei rising 0.6%.
European stocks were also trading up about 1% or higher.