Markets surge despite CRR hike

Sensex soars 290 pts to 15,550, biggest gain since April 9 this year.

Unaffected by the Reserve Bank of India's (RBI's) liquidity tightening, the stock markets were upbeat on Tuesday, as the benchmark 30-stock Bombay Stock Exchange Sensex gained 290 points (1.90 per cent) to 15,550 points, registering the biggest gain since April 9 this year. The 50-stock S&P CNX Nifty grew 2 per cent to 4,528.85 points.

The Sensex today opened at 15,358.69 points and gained around 150 points at noon, when the policy was announced.

Though it went into the red immediately after the news of the CRR hike, it made a comeback and surged rapidly in the latter half of the day. Many short positions were also covered and there was significant buying in large-cap stocks.

Analysts said the recovery was possible after the market realised the 50 basis point increase in the cash reserve ratio (CRR), the amount of interest-free cash banks must keep with the central bank, would result in more inflows, strengthening the currency and making investments by foreign institutional investors (FIIs) attractive.

FII investments account for 20 to 22 per cent of market capitalisation.

"The RBI is expecting inflationary pressure, hence the hike in CRR. There has been more demand in the economy, which has been reflecting in the stock market prices," said Shree Shankar, head of research, IL&FS Investsmart.

The top Sensex gainers were Larsen and Toubro (up 6.58 per cent), HDFC (up 5.65 per cent) and BHEL (up by 5.33 per cent). Top Sensex losers include Mahindra and Mahindra (down 3.11 per cent), Hindustan Unilever Ltd (down 1.15 per cent) and Tata Motors (down 1.12 per cent).

The BSE Bankex, which tracks the movement of bank stocks, ended at 8,148.68 points (up 1.16 per cent), recovering from a low of 7,925.04 points in the afternoon. State Bank of India (up by 8.3 per cent) and Federal Bank (up 6.99 per cent) were the highest gainers among bank stocks.

"We believe the banking sector should clearly benefit and so will real estate, as mortgage rates will remain stable or fall going forward," said Amitabh Chakraborty, president (equities), Religare Securities.