After seven consecutive sessions of losses, domestic equities witnessed a relief rally on Friday, helped by the Reserve Bank of India’s assurance to take necessary steps to shield the domestic economy from the global shocks. The up move brought in a nearly 1,300-point rise in the Sensex while the NSE Nifty moved past the psychologically-important level of 17,000 points.
The respite was seen in broader markets, too, as Nifty SmallCap 100 and Nifty MidCap 100 indices rose 0.9 per cent each. Volatility gauge, India VIX, meanwhile, slipped over 5 per cent.
Sectorally, rate-sensitive sectors like Nifty PSU Bank and Nifty Bank gained the most – over 2 per cent. Besides, Nifty Realty and Nifty Auto indices climbed over 1 per cent each.
RBI’s assurance of growth
On expected lines, the Reserve Bank of India’s Monetary Policy Committee raised the repo rate by 50 basis points to 5.9 per cent and also retained its stance on remaining focussed on the withdrawal of accommodation.
“The RBI MPC increase of repo rate of 50 basis points, comes as no surprise to the market as the same was widely expected. The governors mention of doing away with forward guidance is a clear indication of the hawkish stance that the RBI is going to be adopting for the next few cycles, with policy responses evolving in response to changes in the external environment. While the country fundamentals seem to be strong and there is hope that they will continue to be strong, headwinds from the global environment have a bearing on growth for which policy responses will be provided, even if they are unconventional is what we heard the governor say. The markets are going to see some interesting times.” Vivek Iyer- Partner and leader, Financial services risk, Grant Thornton Bharat.
Rupee & Bonds Strenghten
Following the RBI’s decision and outlook, the rupee rose sharply against the dollar. The local currency was trading at 81.58 against the greenback as against Thursday’s close of 81.86.
Prices of government bonds also rose as RBI’s policy action was on expected lines. The fact that the RBI did not sound too hawkish on the inflation front even though it highlighted upside risks due to global geopolitical tensions improved sentiment.
Nifty Technical Outlook
“As expected by the markets, MPC has raised 50 bps and therefore we are witnessing a short recovery in banking stocks. However, it is little worrisome as the inflation trajectory remains uncertain. The crude prices easing down is a positive outlook that is paving way for a strong recovery. Keeping up above the 17000-mark however is extremely crucial,” said Kush Ghodasara, CMT independent market expert.
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