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BSE Sensex, which fell over 38 points in the morning trade, rebounded 126.94 points, or 0.61 per cent, to 20,697.22 points in the afternoon trade.
In similar fashion, the wide-based NSE Nifty was trading 34.80 points, or 0.57 per cent, higher at 6,135.10 points after falling 8.45 points in early trade.
Sentiments turned better after the RBI cuts Marginal Standing Facility (MSF) rate by 0.25 per cent to 8.75 per cent which would bring down the cost of short-term funds for banks.
The repo rate or the short-term lending rate has been increased by 25 basis points to 7.75 per cent and the economic growth forecast lowered for this fiscal to 5 per cent from 5.5 per cent in RBI's policy announcement.