RBI surprises with rate cut; Sensex logs biggest rally in over 5 yrs

Thursday, Jan 15, 2015,21:50 IST By metrovaartha A A A

Mumbai | In its biggest single-day rally in over 5 years, benchmark Sensex today zoomed by 728.73 points to reclaim the 28,000-mark on massive buying across sectors after RBI Governor Raghuram Rajan sprang a surprise by cutting interest rates to boost growth. Markets opened with a gap-up of nearly 500 points.
Before trading began Rajan, who had focused on quelling inflation since taking office in September 2013, lowered the benchmark repurchase rate to 7.75 per cent from 8 per cent, the first reduction since May 2013. As the day progressed, participants, both domestic and foreign, stepped up purchases. Investor wealth reclaimed the Rs 100-lakh crore mark.
Buying was seen across-the-board as all 12 BSE sectoral indices ended with gains of between 0.44-7.99 per cent. The BSE Sensex resumed at 27,831.16 and then touched over one-month intra day high of 28,194.61 before closing at 28,075.55, a jump of 728.73 points or 2.66 per cent. Previously, it had soared by 2,110.79 points on May 18, 2009. HDFC, ICICI Bank, ITC, RIL, SBI, HDFC Bank and L&T led the 28 gainers in the 30-share BSE Sensex. The NSE Nifty opened at 8,424.50 and surged to 8,527.10 before closing at 8,494.15, up 216.60 points or 2.62 per cent. As many as 46 constituents surged in the 50-share Nifty index. We believe that this is a beginning of a big rate cut cycle. We expect a further 125 bps over the next 12 months, said Morgan Stanley analyst Chetan Ahya in a report. The rate cut ahead of a scheduled RBI policy meeting on February 3 will result in more money in the hand of the consumers, Finance Minister Arun Jaitley said, while bankers started cutting rates within hours of the announcement.
Besides, a strengthening rupee which was trading over one per cent higher at 61.35 against the dollar (intra-day) also buoyed the trading sentiments. Most Asian stocks ended higher after India cut rates. Key benchmark indices of China, Hongkong, Japan, Singapore and South Korea rose by 0.03 per cent to 3.54 per cent while Taiwan’s weighted average eased by 0.16 per cent. European markets were trading mixed as investors weighed company earnings results.
Key benchmark indices in France and the UK eased by 0.47 per cent to 0.56 per cent while Germany’s DAX was quoting higher by 0.13 per cent. Meanwhile, provisional data showed Foreign Portfolio Investors sold Indian shares worth net Rs 69.7crore yesterday. Coming back to the Sensex, major gainers include HDFC (7.16 per cent), SBI (5.02 per cent), ICICI Bank (4.60 per cent), L&T (3.61 per cent), Tata Power (3.55 per cent), RIL (3.54 per cent), M&M (3.10 per cent), Maruti Suzuki (3.04 per cent), ITC (2.76 per cent), Axis Bank (2.57 per cent), HDFC Bank (2.56 per cent) and Tata Motors (2.33 per cent). The surprise rate cut has lifted spirits, say experts. Indian markets were languishing for past few sessions due to lack of any triggers.
This is a good enough trigger for markets to cheer. RBI has let down its guard a bit and clearly spelt out its comfort on inflation. Now, if reforms also come in, India could be in a sweet spot for this year as well as beyond, said Kotak Securities CEO Kamlesh Rao. Among the S&P BSE benchmark indices, Realty rose by 7.99 per cent, followed by Bankex 3.29 per cent, Capital Goods 2.40 per cent, Auto 2.13 per cent, Power 2.10 per cent, Oil&Gas 2.01 per cent, FMCG 1.35 per cent and Consumer Durable 1.11 per cent.
Total market breadth turned positive as 1,720 stocks ended in the green, 1,174 finished in the red and 112 ruled steady. Total turnover rose to Rs 4,305.55 crore from Rs 3,205.62 crore yesterday.