The BSE Sensex shot up to an
almost three-year high on Tuesday, jumping 359 points, as investors cheered the Reserve Bank of India's (RBI) decision to increase repo rate to tame inflation and enhance liquidity for banks.
The 30-share index of the Bombay Stock Exchaneg initially traded in a narrow range and surged after the central bank's policy review, to settle at 20,929.01, a gain of 358.73 points or 1.74 per cent. It is the highest close since the index finished at 20,932.48 on November 9, 2010.
The Sensex had tumbled 324 points over the previous five sessions.
All 13 BSE sectoral indices advanced, led by interest rate-sensitive bank, realty and auto shares.
Rate-sensitive stocks ICICI Bank, HDFC Bank, HDFC and State Bank of India
contributed to almost half of the Sensex's gains. Auto stocks Maruti Suzuki and Mahindra & Mahindra were among the top gainers on the index.
The
central bank hiked the policy repo rate to 7.75 per cent and cut the marginal standing facility rate to 8.75 per cent, as was widely expected. It also increased liquidity provided through seven-day and 14-day term repos.
RBI Governor Raghuram Rajan said it was important to break the spiral of rising price pressures to curb the erosion of financial savings and strengthen the foundations of growth.
"The market agrees with Rajan's decision that
inflation must be tamed before we focus on growth," said Shrinivas Viswanath, co-founder of RKSV. "We may be on the path towards recovery as many things seem to be falling in place."
The RBI seems to be tackling WPI inflation and the FY15 growth forecast pretty aggressively, said Viswanath.
Meanwhile, the 50-share Nifty of the National Stock Exchange flared up 119.80 points, or 1.96 per cent, to end at an almost three-year high of 6,220.90. The SX40 on the MCX Stock Exchange closed 195.44 points higher at 12,445.13.
Short-covering ahead of the expiry of October futures and options contracts on Thursday also aided market sentiment.
With inputs from PTI
PHOTO: Associated Press 
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