Additional liquidity for banks helps Sensex climb 185 points

Written by fe Bureau | Mumbai | Updated: Aug 6 2014, 07:30am hrs
Markets, led by interest-rate sensitives, ended higher on Tuesday after the Reserve Bank of India (RBI) decided to cut Statutory Liquidity Ratio (SLR) by 50 basis points to 22%, while maintaining the status quo on the key rates. The BSE benchmark Sensex ended near 26,000, while the NSEs Nifty closed above 7,700.

On Tuesday, foreign institutional investors (FIIs) bought shares worth $8.8 million, while domestic institutional investors bought shares worth $10.37 million, according to provisional data on the exchanges. FIIs have bought $11.75 billion worth of shares in YTD.

Experts say the cut in SLR underlines the RBI governors confidence in governments fiscal consolidation process. The governor has cut the SLR, while expressing his confidence that the government will bring down the fiscal deficit. The SLR could have a positive impact on the profitability of the banks. It will boost supply. However, it is too early to gauge the impact of the policy on interest-rate sensitive sectors, said Raamdeo Agrawal, joint managing director at Motilal Oswal Financial Services.

On Tuesday, the 30-share BSE Sensex ended higher by 184.85 points or 0.72% at 25,908.01 points, while the broader 50-share Nifty gained 62.9 points or 0.82% to close at 7,746.55 points.

The RBI in a statement said SLR has been cut in anticipation of a recovery in the economy. With the Union Budget for 2014-15 renewing commitment to the medium-term fiscal consolidation roadmap and budgeting 4.1% of GDP as the fiscal deficit for the year, space has opened up further for banks to expand credit to the productive sectors in response to its financing needs as growth picks up, the statement read.

Among other measures, the RBI governor cut the ceiling for SLR securities from 24.5% to 24% of net demand and time liabilities (NDTL) of banks in the held-to-maturity category (HTM), which will deepen the bond market and make more room in the available-for-sale (AFS) category. The Repo Rate and Cash Reserve Ratio were left unchanged at 8% and 4%, respectively. The market rally was led by gains in Mahindra & Mahindra which gained 3.83%, followed by ONGC (3.18%) and Bajaj-Auto (2.96%). Among its peers, most Asian markets ended in the red on Tuesday.

The Kospi (-0.68%), Jakarta Composite (-0.20%), Taiwan Taiex (-2.02%), Shanghai Composite (-0.15%) and Nikkei (-1%) were among the losers. Among the key European indices, the FTSE 100, the DAX and the CAC were all trading in the green at about 5.15pm (IST).

Back home, 21 of the 30 Sensex stocks ended in the green on Tuesday. In the broader market, the breadth was strong with 1,757 stocks traded on the BSE ending higher compared with 1,167 declines.

Most of the 13 BSE sectoral indices ended in the green. The BSE Realty was the best performer with gains of 2.65%. Taking a positive note from the monetary policy other rate sensitives BSE Auto (2.11%) and BSE Bankex (0.28%) ended in the green.