Sensex surges over 1,000 points, RBI's dovish stance cheers investors

The benchmark indices on Wednesday posted their biggest single-day gains in over six months, buoyed by the Reserve Bank of India’s (RBI’s) decision to keep the policy rates unchanged in a bid to support economic recovery. Investors across the world continued to ‘buy the dip’ on hopes that the Omicron variant of coronavirus would be less lethal than feared.

The Sensex closed at 58,649, up 1,016 points, or 1.7 per cent. The index has rallied 1,903 points, or 3.4 per cent, in just two trading sessions. The Nifty ended the session at 17,469 with a gain of 293 points, or 1.7 per cent. This was the sharpest rise for both indices since May 21 in percentage terms. The Indian indices opened higher tracking global markets, and the RBI announcement helped them consolidate the gains.

Selling by overseas investors moderated on Wednesday as they sold shares worth Rs 580 crore only, significantly less than the average Rs 3,000 crore in the previous seven trading sessions.

Top US epidemiologist Dr Antony Fauci said Omicron is unlikely to be more severe than the previous variants. However, he added, it would take some weeks to judge its severity. Meanwhile, British drug manufacturer GSK, quoting some early-stage studies, said its antibody-based Covid-19 therapy is effective against all Omicron mutants.

“Our markets were following global markets. The RBI announcement gave support and helped it hold on to the gains. The gains are more on account of speculation, but on the positive side,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

The RBI decided to keep the benchmark repurchase rate at 4 per cent and retain its accommodative policy to favour economic growth as inflation is within its target. The RBI also kept the reverse repo rate at 3.35 per cent.

Analysts said the RBI took a dovish stance looking at the uncertainty around the Omicron variant. It did not rule out the possibility of a more aggressive stance during its next policy announcement in February next year. And the RBI support is crucial as private consumption is still below pre-pandemic levels.

“There was always a lurking fear of a rate hike given the inflation trajectory and the fact that other central banks have started adopting a more hawkish tone. The news on the Omicron variant was also encouraging. The positive news on the new variant was what investors wanted to hear, and they are lapping it up with both hands. One cannot be sure that sentiment won’t change. Foreign investors are still big sellers. Unless there is a change in FPI selling, we cannot say sentiment has changed,” U R Bhat, co-founder, Alphaniti Fintech, said.
 

The benchmark indices had come off as much as 9 per cent from their peak on October 18. After back-to-back days of sharp gains, the Sensex is now 5 per cent below its peak.

“The underlying economic data is positive. And people are looking for excuses to buy. As long as the economy goes on this trajectory, it will be difficult to stop the rally. It all depends on whether the steady economic and earnings recovery we saw in the previous quarters sustains,” said Saurabh Mukherjea, founder of Marcellus Investment Managers.

The market breadth was positive, with 2,329 stocks advancing against 948 declining on the BSE. Barring two, all Sensex constituents ended the session with gains. Bajaj Finance was the best performing stock and rose 3.6 per cent. Auto stocks rose the most, and its gauge rose 2.24 per cent.