Markets continue to rally on RBI policy fillip; Sensex rises 164 points

Domestic markets rose for a fourth consecutive day after the Reserve Bank of India (RBI) stepped up efforts to support credit growth while keeping interest rates unchanged. The Sensex gained 0.4 per cent, or 164 points, to end at 41,306 — the highest since January 24. The Nifty rose 45 points, or 0.4 per cent, to close at 12,134.

The RBI kept policy rates steady for a second straight meeting, but left the option open for further easing. Surging inflation and faltering economic growth has made monetary policy action a tough balancing act for the regulator. 

Investor sentiment was lifted by RBI’s measures to improve monetary policy transmission and boost credit growth. The relaxation provided to housing finance companies for their commercial real estate exposure also helped. The regulator exempted banks from cash reserve ratio (CRR) requirements on incremental credit disbursed on automobile retail loans, housing mortgages, and loans to micro, small, and medium enterprises. The central bank also eased guidelines on project loans to the commercial real estate sector by allowing a one-year extension to the date of commencement of project loans that have been delayed for reasons beyond the control of promoters, without attracting a downgrade of asset clarification. 

Market sentiment was also boosted from a global rally in risk assets, on speculation that the fallout from the coronavirus will be contained. China’s tariff cuts on $75 billion worth US imports kept the mood buoyant.

News reports of possible medical advances to combat the coronavirus outbreak in China also helped in improving investor sentiments. 

The domestic economic data released this week also cheered investors. Data released on Wednesday showed the services Purchasing Managers’ Index (PMI) rising to a seven-year high at 55.5 in January. 

Drop in crude oil prices also helped domestic markets recover. Brent crude hit a 52-week low on Tuesday at $53 per barrel. Markets have gained nearly 4 per cent this week, after dropping nearly 2.5 per cent on Saturday on account of Budget disappointment.

(With inputs from Bloomberg)