Bulls kept a grip on the market as benchmark indices were trading nearly 1.5 per cent higher during the afternoon on Wednesday.
Markets opened on a positive note, tracking strong global cues ahead of the RBI policy outcome. Benchmark indices extended gains further, recording broad-based buying, as the Reserve Bank of India’s monetary policy committee (MPC) maintained an accommodative stance keeping key policy rates unchanged.
At 1 pm, the BSE Sensex was trading at 58,488.48, up 854.83 points or 1.48 per cent. It recorded an intraday high of 58,539.72 and a low of 58,122.27. The Nifty 50 was trading at 17,420.65, up 243.95 points or 1.42 per cent. It recorded an intraday high of 17,436.30 and a low of 17,308.95.
Bajaj Finance, Bajaj Finserv, Grasim, ICICI Bank and State Bank of India were the top gainers on the Nifty 50 while HDFC Life, Powergrid, Divi’s Lab, Kotak Bank and Coal India were the top losers.
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.
Covid variant Omicron’s risk to monetary policy
Naveen Kulkarni, Chief Investment Officer, Axis Securities, said, “RBI remains supportive of getting economic growth on track, continuing with a soft interest rate regime, and calibrating liquidity conditions in the system. On expected lines, 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 prioritising 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 normalisation 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.
Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, said, “We believe that the inflationary pressures are likely to be higher in the next few quarters if consumption demand picks up in a steady manner, given the expectations of continuing supply constraints in some sectors.”
All in green on sectoral front
On the sectoral front, all indices were in the green. Financials, auto, IT, realty, metal and oil & gas recorded higher gains.
Nifty IT and Nifty PSU Bank were up nearly 2 per cent. Nifty Bank, Nifty Financial Services and Nifty Realty were up nearly 1.5 per cent. Nifty Metal, Nifty Auto, Nifty Private Bank and Nifty Oil & Gas were up over 1 per cent.
Broader indices
Broader market also extended gains with broader indices trading in the green.
Nifty Midcap 50 was up 1.40 per cent while Nifty Smallcap 50 was up 2.04 per cent. The S&P BSE Midcap was up 1.15 per cent while the S&P BSE Smallcap was up 1.39 per cent.
The volatility index softened 5.75 per cent to 17.40.