From opening deep in the red, key equity indices staged a marked recovery on back of an unexpectedly high interest rate cut by India's central bank. The Indian equity markets provisionally closed 162 points up on Tuesday.Uncertainty over the rate cut decision, fears of a hawkish economic outlook and bank's ability to transmit the easing of monetary policy had subdued the two major bellweather indices of the Indian equity markets.Even the negative cues from the Asian markets dented sentiments here. Japan's Nikkei index plunged by 4.05 percent. Hong Kong's Hang Seng index declined by 2.97 percent, while China's Shanghai Composite Index receded by 2.06 percent. Both, the 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) and the wider 50-scrip Nifty of the National Stock Exchange (NSE) were trading more than one percent down just before the policy announcement was made by the Reserve Bank of India (RBI).The markets were elated after the monetary easing announcement, and zoomed into the positive territory, seconds after RBI Governor Raghuram Rajan's announcements of a 50 basis points reduction in key lending rates.
Notwithstanding the more than expected easing, the markets fell on the concerns over the diminished prospects of future rate cuts and disappointing outlook on domestic and global economic scenario.The RBI revised its growth forecast to 7.4 percent from 7.6 percent and gave cues about firming up of inflationary trends.However, both the indices soon paired their losses and were back in the green.The wider 50-scrip Nifty of the National Stock Exchange (NSE) provisionally closed the day's trade with gains of 31.70 points or 0.41 percent at 7,827.40 points.The S&P BSE Sensex which opened at 25,496.38 points, provisionally closed at 25,778.66 points (at 3.30 p.m.) -- 161.82 points or 0.63 percent up from the previous day's close at 25,616.84 points.The Sensex touched a high of 26,054.37 points and a low of 25,287.33 points in the intra-day trade.Market observers cited that the markets welcomed the 50 basis points "booster dosage" coupled-with a dovish outlook given by the apex bank.
"The rate cut has been widely welcomed. The markets have perceived it to have come at the right time given the inflation window," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS."The 50 basis point cut is expected to support growth and provide the needed credit boost to the economy." Nitasha Shankar, vice president of research with YES Securities, said that the markets were elated by the fact that the RBI charted out ways to smoothen transmission of earlier rate cuts by the banks."The markets welcomed the fact that the RBI talked about ways for smoothening of transmission of rate cuts by the banks. It mentioned some steps that it can take and the others that the government has to initiate," Shankar told IANS."The comments that the future rate cuts will depend on the ability of the banks to transmit rate cuts and that RBI will maintain accommodative stance also cheered investors."An easing of key lending rates is expected to restore investors' confidence, prop up sales of interest in sensitive sectors like automobile, capital goods and real estate.