Markets gain on RBI's accommodative stance, banking stocks lead rally

Sensex gains 0.94%; Bank Nifty rises 1.5%

The domestic markets rallied nearly one per cent after the Reserve Bank of India (RBI) pledged to maintain an accommodative stance for as long as necessary to support growth, amid a new wave of coronavirus infections.

The S&P BSE Sensex rose 460 points, or 0.94 per cent, to close at 49,662, while the Nifty 50 index added 136 points, or 0.92 per cent, to finish at 14,819. Banking stocks led to the gains with the Bank Nifty index soaring 1.5 per cent. Other rate-sensitive sectors also performed well with the Nifty Auto index gaining 1.6 per cent and the Nifty Realty index gaining 0.96 per cent.

The RBI monetary policy committee held the benchmark repurchase rate at a record low of 4 per cent - a decision predicted by all 30 economists surveyed by Bloomberg.

Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life

“The policy has been dovish as supported by fall in bond yields. This should benefit the equity markets as borrowing costs will be in check for some time,” said Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life.

The yield on the 10-year government security on Wednesday fell 40 basis points.

The central bank pledged to buy Rs 1 trillion ($13.5 billion) of bonds this quarter to cap borrowing costs to support an economy facing a resurgence of coronavirus infections.

"Indian market is invigorated by RBI’s long-term dovish stance to maintain an easy money policy till the economy reverts to normalcy. A big cheer is the bond buying program of Rs.1 trillion to ensure liquidity and flatten the long-term yields curve. RBI’s decision to maintain its high GDP growth forecast also helped the market to calm down its fears which had increased post the second wave infection and stringent lockdowns," said Vinod Nair, Head of Research at Geojit Financial Services.

A new wave of Covid cases has brought back localized lockdowns in a number of key states, raising concerns over business recovery. India is reporting daily new infections of around 100,000 and its wealthiest state Maharashtra has emerged as the epicenter.

“Localized and regional lockdowns could dampen the recent improvement in demand conditions and delay the return of normalcy,” RBI Governor Shaktikanta Das said.

Barring three, all Sensex components posted gains on Wednesday. State Bank of India and ICICI Bank gained over two per cent each. Overall, 1,837 stocks advanced and 1,111 declined on the BSE.

The Indian markets have underperformed their global peers this week. On Monday, the Sensex had following imposition of restrictions in Maharashtra to contain the rapid increase in Covid-19 infections.