Indian indices continued an upward trend after the Reserve Bank of India maintained the status quo in its final policy of FY22. Both Sensex and Nifty were trading around 0.8 percent higher.
"The domestic market maintained its upward momentum aided by strong global cues and positive RBI policy. Though the market expected RBI to moderate its policy tone, the central bank surprised with a super dovish statement by maintaining its accommodative stance, modest inflation forecast and GDP growth of 7.8 percent in FY23," said Vinod Nair, Head Of Research at Geojit Financial Services.
The repo rate remained unchanged at 4 percent for the tenth consecutive time and the reverse repo rate was retained at 3.35 percent. Analysts, however, were expecting a minor hike in the reverse repo rate.
The RBI also decided to continue with its accommodative stance as long as necessary to revive growth on a sustainable basis.
"The pandemic holds the world economy hostage once again. Containment measures are denting the pace of economic activity. With inflation at a multi-decadal high, the macro-environment is rendered highly uncertain," RBI Governor Shaktikanta Das stated in his speech.
Rate-sensitive stocks were trading mixed post the RBI announcement. The Nifty Bank and Nifty Fin Services surged a percent each as RBI did not raise rates with the Nifty Private Bank index up 1 percent. However, Nifty PSU Bank index ended flat.
"RBI has again voted for growth by continuing the accommodative stance and retaining the current repo and reverse repo rates. Even though this might invite criticism of the central bank being behind the curve, the RBI governor has categorically communicated that "continued policy support is warranted for a durable and broad-based recovery. This clear pro-growth stance is desirable at the current juncture," Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said.
He added that the market has responded positively to the policy as of now with banking stocks exhibiting strength. However, the short to the medium-term trend of the market is likely to be influenced by the inflation data in the US expected late tonight, he noted.
Among banking stocks, Federal Bank, Kotak Bank, and HDFC Bank rose between 1-2 percent while SBI, AU Bank and Axis Bank added over 0.5 percent each. Financial stocks were also in the green. ICICI Prudential gained 2.5 percent followed by PFC, up 2.4 percent. SBI Life, REC, Shriram Transport Finance and HDFC advanced between 1.5 percent and 2 percent each.
Among auto stocks, M&M, Tata Motors and TVS Motor company were up 0.8 percent, 1.2 percent and 1.5 percent, respectively. However, Bharat Forge, Maruti Suzuki, Ashok Leyland, and Hero Moto ended in the red for the day, down up to 2.6 percent.
Whereas, in the Nifty Realty index, Brige Enterprises and Godrej Properties jumped the most, up around 2 percent each. DLF, Sobha and Indiabulls Real Estate were also positive while Suntech, Prestige Estates, Oberoi Realty and Lodha were negative for the day.
"Going forward, govt thrust on capital expenditure should crowd out private investment. RBI surveys show capacity utilisation is rising. Prospects for agri have brightened. There is some loss of momentum for growth due to global factors," stated Das. RBI sees FY23 GDP growth at 7.8 percent.