Indian stock markets hit new highs today, led by strong gains in banking stocks as RBI maintained its accommodative stance on liquidity. Nifty Bank index rose 1.5% to inch closer to 30,000 while Sensex hit 45,000 for the first time. The announcement by RBI to keep system liquidity in surplus to help growth is a big positive for rate sensitive stocks, say analysts.
The Reserve Bank of India (RBI) today kept key interest rates steady while the monetary policy committee also decided to retain an accommodative policy stance at least for the current financial year and into the next year to revive growth on a durable basis, Governor Shaktikanta Das said.
“RBI policy was on expected lines. They have prioritised growth over inflation. This is an acknowledgment that inflation drivers seem to be more supply side led. An accommodative liquidity stance will ensure access to liquidity will not be a challenge and the ongoing recovery continues to gather steam. This will help push through govt borrowings in a year where the revenues are under pressure. Guidance is better than earlier on growth and flows. Positive for markets,” said Ashish Shanker, Deputy MD and Head of Investment, Motilal Oswal Private Wealth Management.
The RBI today also upgraded its growth outlook, seeing a milder 7.5% contraction this fiscal year as opposed to its reading in October for a 9.5% decline. That follows a less-than-expected drop in gross domestic product in the three months to September, the second straight quarterly contraction.
“RBI has assured markets of continued liquidity support while maintaining orderly market conditions. The dovish tone of the policy statement has assuaged market fears of an early withdrawal of the post pandemic liquidity support. Overall, with RBI’s assurance of lasting nature of growth supportive measures, we expect 10-year benchmark yield to trade in 5.80 – 6.00% range for the rest of the financial year,” said Churchil Bhatt, EVP & Debt Fund Manager, Kotak Mahindra Life Insurance Company.
The MPC sees inflation in the current quarter at 6.8% before cooling slightly to 5.8% in the Jan-March quarter.
“RBI’s projection of GDP growth to be positive for H2 is in line with market’s optimism. There is no market moving announcement in the policy, but the overall tone is positive,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
The Nifty realty index was also up 1%.
“The RBI keeping key rates unchanged is on expected lines. The announcement by RBI to keep system liquidity in surplus to help growth is a big positive. Low rates and availability of ample funds are necessary for demand in the real estate sector. The result of low rates helped pick up demand in the last few months,” said Krish Raveshia, CEO of Azlo Realty.
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