Bulls kept a grip on the market on Wednesday with benchmark indices closing higher for the second consecutive session owing to RBI’s accommodative stance and positive global cues.

Markets opened on a positive note, tracking strong global cues ahead of the RBI policy outcome. Benchmark indices extended gains further as the Reserve Bank of India's monetary policy committee (MPC) maintained an accommodative stance, keeping the key policy rates unchanged, recording broad-based buying. The rally was led by financials and auto.

The BSE Sensex closed at 58,649.68, up 1016.03 points or 1.76 per cent. It recorded an intraday high of 58,702.65 and a low of 58,122.27. The Nifty 50 closed at 17,469.75, up 293.05 points or 1.71 per cent, near the day’s high of 17,484.60. It recorded an intraday low of 17,308.95.

Breadth remains positive

The market breadth remained positive with 2,329 stocks advancing on the BSE as against 948 that declined while 134 remained unchanged. Furthermore, 427 stocks hit the upper circuit as compared to the 160 stocks that were locked in the lower circuit. Besides, 224 stocks touched a 52-week high level and 14 touched a 52-week low.

The volatility index softened 6.47 per cent to 17.27.

S Ranganathan, Head of Research at LKP securities said, "Positive Global Cues coupled with the continuation of an accommodative policy stance of the RBI by holding rates fired up the Bulls today even as the Central Bank decided to enhance the variable reverse repo rate auctions to rebalance liquidity.”

“The bullish undertone was reflected in the sectoral indices as well as in Advance-Declines as the market breadth was healthy with Small & Midcaps too participating in the rally. Several smaller companies today have access to capital and this is getting reflected in the markets as well,” added Ranganathan.

Further, markets shrugged Omicron fears as recent reports suggested that the variant currently does not appear to cause more severe disease than previous Covid variants, and is not likely to fully dodge vaccine protections.

RBI keeps key policy rates unchanged

The Reserve Bank maintained a dovish stance, keeping the key rates unchanged and projected GDP Growth for 2021-22 at 9.5 per cent amidst uncertainties around the spread of the Omicron variant of coronavirus.

As was widely expected, the six-member MPC left the policy repo rate unchanged at 4 per cent and continued with its accommodative stance.

This is seen as a major positive from the market perspective, according to experts. However, inflationary pressures are likely to weigh on the market in the coming months.

Naveen Kulkarni, Chief Investment Officer, Axis Securities said, “RBI remains supportive of getting the economic growth on track, continuing with a soft interest rate regime, and calibrating liquidity conditions in the system. On expected lines, the status quo was maintained on rates with an accommodative stance.”

“Stance on inflation has been mildly tinkered with, even as markets were expecting marginally higher upward revisions. GDP estimates at 9.5 per cent for FY22 indicate a wait and watch policy by RBI eyeing risks emanating from the new Covid variant and further demand push required to revive growth,” said Kulkarni.

According to Kulkarni, interest-sensitive sectors such as banks, housing will continue to be key beneficiaries.

“We believe that RBI prioritizing growth with an eye on inflation will keep the hardening of interest rates gradual and the upcoming Budget in February to be a key trigger for the markets,” added Kulkarni.

Amar Ambani, Senior President & Head of Institutional Equities, YES Securities said, “Though a status quo on the repo rate was in line with the market expectations, no move on the reverse repo was not what the money markets were pricing in.”

“Yields in the money markets have been firming up, given that variable reverse repo auctions are being conducted at rates proximal to 4 per cent. The status quo on the reverse repo is construed to be dovish. RBI is sticking with a tailored policy stance that balances growth and inflation. Meanwhile, RBI will continue to absorb excess liquidity in a non-disruptive manner, primarily through variable reverse repo auctions,” said Ambani.

“We think the normalization of the LAF window is now subject to the durability of the economic recovery and mitigation of the pandemic uncertainty. Meanwhile, normalisation of the repo rate is completely ruled out till most of the H1 FY23,” added Ambani.

Financials, Auto in focus

On the sectoral front, all indices closed in the green. Financials, auto, IT, realty, metal and pharma recorded higher gains.

Nifty PSU Bank was up 2.57 per cent while Nifty Auto was up 2.31 per cent at closing.

Nifty Bank, Nifty Financial Services, Nifty IT, Nifty Metal and Nifty Realty were up nearly 2 per cent.

Nifty Private Bank, Nifty Pharma and Nifty Healthcare index were up around 1.5 per cent.

Broader indices

Broader market also extended gains with broader indices closing in the green.

Nifty Midcap 50 was up 1.73 per cent while Nifty Smallcap 50 was up 1.95 per cent at closing. The S&P BSE Midcap was up 1.39 per cent while the S&P BSE Smallcap was up 1.50 per cent.

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