The Reserve Bank of India kept its key policy repo rate unchanged on Tuesday as widely expected, but cut the statutory liquidity ratio by half a percentage point to 22.0 percent of deposits, effective from Aug. 9.
Experts say the cut in SLR is a positive step. "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 boos the supply. However, it is too early to gauge the impact of the policy on the interest-rate sensitive sectors," said Raamdeo Agrawal, joint managing director at Motilal Oswal Financial Services.
Sentiment was got a boost after overseas investors, who were supporting a 22.9 percent rally in India's broader NSE index so far this year, turned buyers on Monday after selling $494.7 million worth of Indian shares in the previous three sessions.
Foreign investors bought Indian shares worth $61.10 million on Monday, exchange and regulatory data showed.
"RBI policy was quite pragmatic one and is anticipating a growth revival. The focus is shifting from just inflation management to facilitate revival of growth in the economy. And the market has taken it in its full-sense," said Deven Choksey, managing director at KR Choksey Securities.
The benchmark BSE index gained 0.72 percent to 25,908.01 points, while the broader NSE index added 0.82 percent to 7,746.55 points.
Hopes that increased lending after the RBI measures would help spur investment lifted some blue-chips.
Auto stocks were among the leading gainers. Mahindra and Mahindra Ltd gained 3.8 percent, while Bajaj Auto Ltd closed up 3.2 percent and Tata Motors Ltd added 2.3 percent.
Real-estate stocks also gained. DLF Ltd was up 2.2 percent while Unitech Ltd added 6.6 percent.
Lenders also rose, with State Bank of India adding 0.5 percent, Bank of Baroda ending up 1.2 percent and Union Bank of India closing 1.9 percent higher.
Among other gainers, Cummins India ended 7.04 percent higher as analysts said the company management has raised revenue guidance.
However, shares in Tata Communications Ltd closed down 2.4 percent after the company reported a net loss in the June quarter.
Among other decliners, Petronet LNG fell 4.1, declining for the second straight day on broker downgrades after June-quarter earnings lagged some analysts' estimates.
Sensex up 185 pts as RBI gives more funds to banks for lending
(PTI) The benchmark Sensex today soared 185 points as rate-sensitive auto, consumer durables and realty shares notched up handsome gains after RBI Governor Raghuram Rajan enabled banks to provide more credit even as he held interest rates for the third straight meeting.
In highly volatile trade, the Sensex opened higher but went into red after the RBI policy was announced. However, after touching the day's low of 25,562.36, the bluechip index bounced back to end the day at 25,908.01, clocking a rise of 184.85 points, or 0.72 per cent.
The gauge had surged 242.32 points yesterday.
On similar lines, the 50-share NSE index Nifty rose 62.90 points, or 0.82 per cent, to 7,746.55 after shuttling between 7,752.45 and 7,638.05 intra-day.
With poor monsoon and food inflation continuing to remain a worry, the RBI kept key policy rate unchanged. Rajan, however, lowered the statutory liquidity ratio (SLR) --portion of deposits that banks are required to keep in government bonds -- by 0.5 per cent to unlock about Rs 40,000 crore.
Also, it has reduced the ceiling of banks' total holdings of SLR securities under the held to maturity (HTM) to 24 per cent from 24.5 per cent of net demand and time liabilities.
"Dr. Rajan explained in the media briefing they are doing these as medium term measure to enable banks to be able to provide credit when the economy turns," said Murthy Nagarajan, Head Fixed Income, Quantum AMC.
Global financial major Barclays stated that there is a change in the central bank's commentary compared to its "explicit hawkish stance" earlier this year.
Rise in auto stocks helped the Sensex and the Nifty rebound with M&M, Bajaj Auto, Maruti Suzuki and Tata Motors, lifting the BSE Auto index over 2.11 per cent.
Banking index ended 0.28 per cent after earlier falling post RBI policy announcement.
In other sectoral indices, BSE Realty index rose 2.65 per cent, Metal index gained 1.33 per cent, Consumer Durables index 0.99 per cent and Healthcare Index 0.58 per cent.
In the 30-share Sensex constituents, 20 ended higher, 10 other like ICICI Bank, L&T, Hero MotoCorp finishing lower.
Rise in European stocks at opening on the back of better-than-expected quarterly profits by some companies and a mixed at the other Asian markets also influenced the trading sentiments here, a broker said.