Rajan fires markets again; Sensex rises 270 points, PSBs gain

The Indian bourses today closed in the green buoyed by the RBI’s decision to keep policy rate unchanged until the next set of data is released. Interest rate sensitive sectors helped the Sensex close at 20,883. 59, up 271.45 points, and the Nifty at 6217.15, up 78 points.

However, investors remained cautious ahead of the US Fed meeting outcome later today, which capped the gains in the market.

The RBI today kept its repo rate unchanged at 7.75 percent, raising concerns about the weak economic growth. Governor Raghuram Rajan, however, cautioned that the central bank will increase the rate if inflation spikes in December.

“If the expected softening of food inflation does not materialise and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall, the Reserve Bank will act, including on off-policy dates if warranted, so that inflation expectations stabilise and an environment conducive to sustainable growth takes hold,” the RBI policy statement said.

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“Equities would react positively for the next few days. Markets are forward looking and would even try to extrapolate this into an end of rate hike cycle for the short term,“Phani Sekhar, fund manager at Angel Broking, told Reuters, after the policy.

“…This policy pause provides the central banker with the opportunity to calibrate its stance. This pause also provides the RBI with more headroom to take conducive measures, were the US Fed tapering effects to be adverse,” saidLakshmi Iyer, chief investment officer (debt) & head products, Kotak Mutual Fund.

With the RBI policy out of its way, the market will now keenly watch the Federal Reserve’s moves after tonight’s FOMC meeting. The US central bank is widely expected to announce its stimulus taper which will prompt foreign investors to pull out from emerging markets like India.

Riding high on the news of Tesco’s joint venture proposal, Tata group company Trent shares ended 10.45 percent up at Rs 1,178.

The RBI’s pause on interest rates boosted public sector bank shares on hopes this will relieve stress on their net interest margins and boost loan demand. SBI ended up 2.7 percent at Rs 1,764.9. Oriental Bank of Commerce was one of the big gainers of the day, rising 6.8 percent to close at Rs 221.45.

Biocon rose 11.73 percent after inking a licensing agreement with US-based Quark Pharmaceuticals to develop small interfering RNA (siRNA) based therapeutics. The Indian biotech company ended the day on Rs 438.70.