RBI’s CRR cut triggers rally in Indian equities; benchmarks surge to day’s highs

Indian equity markets have given a big thumbs-up to the Indian central bank’s unexpected fifty basis point cut in cash reserve ratio which is evident from the fact that the frontline indices have kept trending northwards since the RBI’s policy announcement. The benchmarks in their skywards journey have garnered over one and half a percentage points and even sailed beyond various crucial levels. However, the key gauges are surely facing some resistance around the psychological 5,150 (Nifty) and 17,000 (Sensex) levels in early noon trades on the back of mild profit booking ahead of European market opening. Nevertheless, sentiments remain extremely bullish as investors have piled up hefty positions not only in heavyweight stocks but largely across the board amid hopes that the RBI will not only focus on inflation but also on easing liquidity pressure to spur economic growth which has been adversely impacted due the RBI’s aggressive monetary tightening measures since March 2010. The RBI kept key policy rates unchanged but by cutting the CRR to 5.5% from 6% the central bank has infused Rs 32,000 crore into the Indian banking system. The banking index on BSE rocketed over three percent post the move while, encouraging earnings announcement by Yes Bank too supported the sentiments. The Capital Goods counter too gained a lot of traction thanks to the close to six percent rally in heavyweight L&T which announced strong third quarter earnings on Monday. In the global space, on a day when all major Asian equity markets off for an extended weekend, the Japanese and Indonesian benchmarks remained the only indices which were open and trading with moderate gains. However, the European futures are indicating a subdued opening for the markets there as worries over the Greek debt negotiations re-surfaced while fears from the earnings front too came to the fore after Siemens' earnings announcement.

However, the broader markets lagged a bit behind in catching up to the sanguine momentum that their larger peers exhibited and traded with gains of around a percent. The bourses jumped on extremely strong volumes of over Rs 1.20 lakh crore as January series futures and options contract are scheduled to expire a day earlier from its usual closing owing to a national holiday on the last Thursday of the month. The market breadth on BSE was in favor of advances in the ratio of 1462:946 while 115 scrips remained unchanged.

The BSE Sensex is currently trading at 17,027.56 up by 275.83 points or 1.65% after trading as high as 17,046.44 and as low as 16,770.01. There were 27 stocks advancing against 3 declines on the index.

The broader indices were trading on a positive note; the BSE Mid cap index surged 1.23% and Small cap climbed 0.73%.

On the BSE sectoral space, Capital Goods up 3.58%, Bankex up 3.12%, Metal up 2.24%, Realty up 2.24% and PSU up 1.41% were the major gainers while there were no losers in the space.

L&T up 5.82%, Hindalco up 4.37%, SBI up 4.24%, Sterlite up 3.48% and ICICI Bank up 3.42% were the major gainers on the Sensex, while Maruti Suzuki down 1.42%, Gail India down 0.36% and Bajaj down 0.29% were the only losers in the index.

Meanwhile, a month after keeping the key policy rates unchanged, the first time since March 2010, the Reserve Bank of India (RBI), has once again left the repo and reverse repo rates untouched at 8.5% and 7.5% respectively. However, in a major surprise for the financial market participants, the Indian central bank has pulled out a rabbit from the hat as it decided to cut the cash reserve ratio to 5.5% from 6% which underscores a cut of 50 basis points.

As a result of the reduction in the CRR, around Rs 32,000 crore of primary liquidity will be injected into the banking system. The Marginal Standing Facility (MSF) rate, determined with a spread of 100 basis points above the repo rate, stands at 9.5% while the Bank Rate too has been retained at 6%.

Meanwhile, the RBI governor was of the belief that it is premature to start reducing policy rates just yet as inflation continues to hover at uncomfortable levels.

The S&P CNX Nifty is currently trading at 5,132.70, higher by 86.45 points or 1.71% after trading as high as 5,141.05 and as low as 5,049.80. There were 45 stocks advancing against 5 declines on the index.

The top gainers on the Nifty were L&T up 5.90%, PNB up 4.70%, Hindalco up 4.51%, SBI up 4.35% and IDFC up 4.07%.

Maruti down 1.25%, Power Grid down 0.45%, Bajaj Auto down 0.30%, GAIL down 0.23% and Dr Reddy’s down 0.09% were the major losers on the index.

In the Asian space, only Nikkei 225 gained 0.22% to 8,785.33 and Jakarta Composite advanced 0.41% to 4002.66 while all other stock markets including that in China, Hong Kong, Malaysia, South Korea, Singapore and Taiwan remained closed in observance of Lunar New Year holiday.