Market cheers RBI’s status quo; Sensex rallies 1,460 pts to reclaim 76,500

Extending gains for the third straight session, Indian benchmark indices, Sensex and Nifty, rallied nearly 2% in intraday trade on Friday as investors gave thumbs up to the Reserve Bank of India’s (RBI) status quo decision.The RBI Governor Shaktikanta Das-led monetary policy committee (MPC) in its meeting today decided to maintain the status quo on key repo rates for the eighth time in a row at 6.5%.

Cheering the RBI’s policy decision, the BSE Sensex rallied as much as 1,460 points, or 1.94%, to 76,536 levels. In a similar trend, the Nifty50 climbed 409 points, or 1.8%, to 23,230 mark.

“The RBI policy aligns with expectations and is not expected to have a major impact on the market. Attention will now shift to the formation of the new cabinet and global cues. Currently, the market appears strong, and there is a good chance that the bullish momentum will continue. The 20-DMA of 22,600 is likely to provide support to the Nifty, while the high of 23,338 is a key hurdle,” says Santosh Meena, Head of Research, Swastika Investmar Ltd.

Apurva Sheth, Head of Market Perspectives and Research, SAMCO Securities, says that RBI played the game with domestic conditions in mind and decided to buck the global trend and stayed away from rate cut like its counterparts in European Central Bank (ECB) and Central Bank of Canada. “The RBI concluded the policy without any rate cuts and emphasized that they remain committed to bringing the inflation down to the target of 4%. The bond yields and stock markets haven’t reacted much as everything the governor said and did was on expected lines,” he says.

At the time of reporting, the BSE Sensex was up 1,300 points, or 1.73%, to 76,375, and the Nifty was trading higher by 317 points, or 1.39%, at 23,138.

In sync with benchmark indices, the broader market also witnessed strong buying, with BSE midcap and BSE smallcap indices rising 0.7% and 1.6%, respectively.

All 30 Sensex constituents were trading in green, while Wipro, Infosys, Bajaj Finance, Mahindra & Mahindra, and Bajaj Finserv were among top five gainers.

Wipro emerged as top gainer, rising as much as 4% after it bagged a $500 million contract from a leading U.S.-based communication service provider.

Bajaj Group shares witnessed strong buying after the board of Bajaj Finance approved the initial public offer (IPO) of its subsidiary Bajaj Housing Finance Ltd. 

On the sectoral front, all indices were flashing in green, led by information technology space, which BSE IT and BSE TECk indices rising up to 3%.

Experts reaction to RBI policy

Ajit Kumar Kabi, Research Analyst - BFSI, LKP Securities, says the RBI kept the policy rate unchanged at 6.5% by eight consecutive times with a majority vote of 4:2, in line with expectations.

“The MPC has continued with the stance of withdrawal of accommodation…We expect the accommodative stance post the full budget announcement on July 24. Additionally the food inflation will be key monitorable."

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank says, "RBI’s status quo on rates and stance was in line with market expectations, but the split in voting patterns clearly shows the increasing probability towards a pivot in the policies ahead.”

“However, we believe the robust growth will give enough opportunity for the MPC to remain on a wait and watch mode until better clarity comes from monsoons and quality of expenditure from the Budget. We see room for stance change in the August policy with a plausible easing from October meeting."

Echoing the same, Madan Sabnavis, Chief Economist, Bank of Baroda, says the policy does not have any surprise on the repo rate or stance. However, there is a major revision in GDP forecasts for the year to 7% which is predicated by a good third and fourth quarter which go with revival in consumption demand.

“This is significant because we were getting contrary signals from the market on rural demand. The RBI’s forecast of inflation for the quarters of next year are important as the number goes less than 5% only in Q2 which means that given the importance placed by MPC on inflation, it looks unlikely that there can be a rate cut before August of next year.” 

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