Markets rise on the wings of dovish RBI; Sensex rises 460 points

The Reserve Bank of India's (RBI's) surprise decision to keep key rates unchanged and its accommodative stance helped the benchmark indices end higher for a third straight day on Thursday.

The Sensex ended the session at 58,926 - a gain of 460 points, or 0.8 per cent. The Nifty, on the other hand, ended the session at 17,606 - up 142 points, or 0.8 per cent. The rate-sensitive Nifty Financial Services and Nifty Realty indices gained about a per cent each.

Contrary to expectation, the RBI decided to hold both the repo and the reverse repo rates and continued with the accommodative stance. It was widely expected that the RBI, like its western counterparts, would announce the end of its easy monetary policy by hiking the reverse repo rate. But it instead chose to focus on growth over inflation and kept the rates of May 2020.

"The outcome was more dovish than most economists expected, although the intent of the RBI to support recovery in the economy in the face of disruption due to the Omicron variant is commendable. Economists will now fear whether the RBI will fall behind the curve, having maintained the easy monetary stance longer than most other central banks had," said Dhiraj Relli, managing director and chief executive officer, HDFC Securities.

"Equity markets may temporarily welcome this decision, but will be largely driven by the balance third-quarter corporate results, the outcome of state elections, and changes in global risk appetite," he added.

Inflation concerns have forced major central banks across the globe, including the US Federal Reserve, to unwind their aggressive bond purchases and low-interest record rates. And equity markets have been on a tailspin as investors are grappling with an end to the pandemic era monetary easing, which helped stocks hit new records.

"Unlike global central banks, the RBI remains more concerned about growth outlook rather than inflation, which is perhaps appropriate, given the domestic macro set-up," said a note by Edelweiss Securities.

The market breadth was negative, with 1,819 stocks declining on the BSE, against 1,529 advances. Around 308 stocks were locked in the lower circuit, against 237 stocks that hit their upper circuit.

Ajit Mishra, vice-president-research, Religare Broking, said with the monetary policy meeting behind us, the focus will shift to earnings.

"Besides, global cues will also remain on participants' radar. In the prevailing consolidation phase, we reiterate our cautious stance and suggest focusing more on risk management,” said Mishra.

The global markets were mixed ahead of the release of the US inflation data.

All Sensex stocks gained, barring four. HDFC Bank gained 1.7 per cent, contributing the most to Sensex gains. Meanwhile, Tata Steel rose 2.1 per cent and was the biggest gainer for a second day.