RBI status quo cheers Dalal Street: Sensex rises 577 points, Nifty closes 196 points higher at 10,325 as banking stocks gain

The Sensex and Nifty closed over 1.5% higher after interest rate sensitive stocks extended gains on Reserve Bank of India's (RBI) first monetary policy announcement for this fiscal today. The central bank kept repo rate and reverse repo rate unchanged at 6% and 5.75%, respectively.

While the Sensex closed 1.75% or 577 points higher at 33,596 level, the Nifty ended the day 1.94% or 196 points higher to 10,325 level.

Brokers said the RBI's decision to keep repo rate unchanged at 6 per cent was largely in line with market expectations and bolstered trading sentiments.

The 10-year govt bond yield fell 1.71% to 7.170 after RBI lowered retail inflation target for the first half of current fiscal to 4.7-5.1 per cent on sharp moderation in food price rise and likelihood of a normal monsoon.

In its bi-monthly policy review in February, RBI had projected inflation in the 5.1-5.6 per cent range in the first half of 2018-19.

The dovish tone of the policy also suggested the RBI will keep rates on hold this year.  This also led to a fall in bond yields.

Public sector banks which have a majority exposure to government bonds gained substantially as lower bond yield leads to a rise in their profitability. According to a report by India Ratings report on February 13, 2018, a rise in bond yields would lead to a considerable fall in the banks' treasury income in the March quarter, with a spillover effect in FY19.

Banking stocks led the charge on Dalal Street with the BSE bankex rising 749 points or 2.78% to 27,693 level.

All 10 components of the index ended in the green. Bank of Baroda (5.72%), SBI (4.66%) and ICICI Bank (3.52%) were the top gainers on the index.

Bank Nifty too rose 2.61% or 630 points to 24,759 level.

Jaikishan J Parmar, Research Analyst at Angel Broking said, "The good news for the markets could be that the MPC has maintained its neutral stance in the policy. That means the RBI may not be too inclined to hike repo rates unless the US Fed opts for 4 rate hikes in 2018. The MPC has maintained GDP growth projections for 2018-19 at 7.4% and the GVA at 7.2%.

It needs to be remembered that the actual inflation trajectory will depend on the monsoons, Kharif output and oil prices. The MPC has guided inflation at 5.1% in the first half of the fiscal and 4.6% for the second half of the fiscal. The government is wary about rate hikes as it would negatively impact its borrowing program. While the vote was 5:1 in favor of status quo on rates, greater details will emerge only when the MPC minutes are made public in the third week."

SBI (4.66%), Tata Steel (3.67%) and ICICI Bank (3.52%)  were the top Sensex gainers.

Metal stocks too hit new highs with the BSE metal index rising 4.14% or 543 points to 13,653 level.

Auto stocks too extended gains with Hero MotoCorp (3.11%), and MRF (3.02%)  and Exide Industries (2.45%)  rising the most on the BSE auto  index.

The index closed 1.76% or 439 points higher at 25,323 level.

All 19 BSE sectoral indexes closed higher.

Market breadth was positive with 2,070 stocks closing higher against 631 closing in the red.

Global markets

The fears of trade conflicts that had escalated with China's tariff plans on some US products in response to the similar moves by the United States turned into the hope of trade talks. President Donald Trump's top economic adviser, Larry Kudlow, suggested the US tariffs won't be implemented if China lowers barriers to trade. Japan's Nikkei 225 surged 1.6 percent to 21,667.83 and South Korea's Kospi jumped 1.5 percent to 2,442.40. Australia's S&P/ASX 200 advanced 0.7 percent to 5,803.50. Stocks in Singapore surged and markets in other Southeast Asian countries were also higher. Markets in mainland China and Hong Kong were closed for holidays.

European markets were trading sharply higher today with shares in Germany leading the region. The DAX was up 1.57% while France's CAC 40 was up 1.56% and London's FTSE 100 rose 1.16%.

US stock markets finished higher on Wednesday after a sharp plunge in the previous session. The Dow Jones industrial average advanced 1 percent to 24,264.30. The S&P 500 index climbed 1.2 percent to 2,644.69. The Nasdaq composite rose 1.5 percent to 7,042.11. The Russell 2000 index of smaller-company stocks gained 1.3 percent to 1,531.66.