Indian equities climb to 7-month high as RBI maintains status quo

Sensex regains 27,000 levels; Nifty up 65 pts

Indian equities climbed to their highest level in seven months, amid firm global cues, after the country’s central bank kept key policy rates unchanged and indicated an ‘accommodative’ policy stance.

The Reserve Bank of India (RBI) kept the repo rate (at which it lends to banks) unchanged at 6.5 per cent, the reverse repo (at which it borrows from banks) at six per cent and the cash reserve ratio at four per cent. It remained upbeat on Gross Domestic Product growth, pegging it at 7.6 per cent in 2017, on the back of improvement in domestic conditions, mainly driven by consumption demand. Expected, it said, to strengthen with a normal monsoon and implementation of the pay commission report.

“While there is more scope for monetary easing, clarity on the same is dependent on the incremental food inflation data, monsoon and the degree of volatility arising from global factors,” said Motilal Oswal, chairman of MOFSL.

On Tuesday, the S&P BSE Sensex rose 232 points to close above the psychological 27,000 mark at 27,010, for the first time since October 28. The 50-share Nifty on the National Stock Exchange (NSE) gained 65 points to 8,266.

Asian shares rose on Tuesday on reassuring comments by US Federal Reserve head Janet Yellen, on the strength of the American economy. She also ruled out a rate increase in the immediate future. Hong Kong’s Hang Seng rose a little over one per cent, while Japan’s Nikkei,  China's Shanghai Composite and Singapore’s Straits Times ended with gains of 0.1-0.6 per cent.

The minutes of the Fed's April policy meeting had hinted at the possibility of a rate rise in June. It had raised rates in December for the first time in nearly a decade.

Indian equities have been on a sustained uptick for the past few weeks, on better than expected earnings growth and forecasts of a strong monsoon. The Sensex has risen five per cent or 1,321 points in the past month.

On Tuesday, all sectoral indices on the NSE traded upwards, with those of the banking, fast moving consumer goods and financial services sectors gaining a little more than one per cent. Lenders led the gains, with ICICI Bank gaining about four per cent on its decision to raise Rs 25,000 crore in tranches via private placement of bonds, debentures and securities. The country’s largest lender, State Bank of India, rose 5.4 per cent, HDFC Bank gained 0.3 per cent and Axis Bank ended flat, after gains in the previous session.

Global cues in the coming days will be dictated in part by action from central banks, with the US Fed and the Bank of Japan announcing policy decisions next week.

Foreign investors have purchased stocks worth Rs 16,698 crore in the year to date, while domestic institutional investors have bought shares worth Rs 11,613 crore. The Sensex has posted a gain of 3.4 per cent this year and is valued at 16.7 times the 12-month projected profits, says Bloomberg.