Indices rise 1% as RBI slashes repo rate by 50 basis points

Benchmark indices rose nearly 1% on Friday following the Reserve Bank of India (RBI)‘s repo rate cut of 50 basis points. Markets opened lower and hit an intra-day low within hours of the opening trading session, but shot up immediately after the central bank announced easing of monetary policy. The BSE Sensex rose 0.9% to close at 82,189 points, while Nifty climbed 1% to settle at 25,003 points.

Barring Nifty Media, all indices improved, with Nifty realty indices increasing over 4%.

The rupee appreciated 11 paise to 85.63 a dollar in response to RBI’s dovish moves and changing stance.  “This decisive, growth-driven policy move provided a significant boost to the local currency and fueled optimism among domestic equity investors,” said Dilip Parmar,  senior research analyst, HDFC Securities. He, however, cautioned that a “resurgent Dollar Index and weakening regional currencies” could limit further gains for the rupee.

Going by the expectation of experts who had forecast the repo rates to settle down at 5.5% by the end of the year, the central bank front loaded the rate cuts along with cutting cash reserve ratio by 100 basis points. A basis point is 1/100th of a percentage. The RBI also changed stance to neutral from accommodative.

“From a technical perspective, Nifty posted a strong close and is on the verge of breaking above its recent swing high of 25,116. A sustained move above this level could propel the index toward 25,307…On the downside, 24,845 may offer near-term support,” said Devarsh Vakil, head of Prime Research at HDFC Securities.