The RBI took the equity markets by surprise, announcing a 25 basis points repo rate to 7.75% shortly before they opened for trading on Thursday. The stock markets gave a big salute to the central bank with BSE Sensex ending 728.73 points higher at 28,075.55, with a gain of 2.66%. The NSE Nifty closed 216.60 points up at 8494.15.
The RBI took the equity markets by surprise, announcing a 25 basis points repo rate to 7.75% shortly before they opened for trading on Thursday. The stock markets gave a big salute to the central bank with BSE Sensex ending 728.73 points higher at 28,075.55, with a gain of 2.66%. The NSE Nifty closed 216.60 points up at 8494.15.
What forced markets to boom?
"The RBI move was well received by the markets and has given an incremental push to the sentiment. But this will not lead to an immediate increase in capex," said UR Bhat, managing director at Dalton Capital (India) Advisors, a foreign fund. Most players said the markets have been displaying bearish trends since Tuesday and on Wednesday, Nifty was down by 46 points from Monday's close of 8323, following global cues where commodity prices like crude, copper continued to weaken hitting new lows on weak demand.
What else aided the market jump?
The country's trade deficit or current account deficit (CAD) hit a 10-month low at $9.43 billion in December as a result of dwindling global oil prices (currently at $48.61 from June's high of $115.06 a barrel) tumbled and lower demand for gold, both of which tilts highly in favour of trade balance and stemming the weakening rupee. The deficit was much below the market expectations of $16 billion. Lower global crude, a renewed hope of sustainable inflation levels of less than 6% and now the repo rate cut, augurs well for the country's road map to growth.
What is the impact on rupee?
"The rupee showed signs of gaining during intraday trades to 61.50 to the dollar, but closed slightly weaker above 62 following buying from importers and state-owned banks," said K Harihar, treasurer at FristRand Bank. "The encouraging trade data should help the rupee stabilise if not strengthen," he said.
Was there similar jump in bond market?
The rate cut, said market players, was factored in by the bond markets which reacted a bit by slipping 8 basis points largely on future hopes of rate cuts. The 10-year bonds ended at 7.69% from the previous day's close of 7.77%. The fact that rupee, after showing intraday volatility of 61.50, closed 10 paise stronger at 62.08 to the dollar from its previous close of 62.18.
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