Mumbai: Stocks ended in the green for the third day Tuesday as the benchmark Sensex rose over 91 points after rate-sensitive stocks broke free on RBI's surprise decision to cut policy rate by 0.25 percent to 6.25 percent, a 6-year low.
In the first monetary policy review under RBI Governor Urjit Patel, the repo rate was today cut by 0.25 percent to 6.25 percent in a unanimous decision by the new rate-setting panel, or MPC.
The cut -- first in six months -- came amid growing calls for lower rates, especially after the exit of former governor Raghuram Rajan, who had faced criticism of stifling growth by keeping rates too high.
Globally, shares at other Asian and European markets ended higher after an upbeat US manufacturing survey bolstered the dollar.
The 30-share index, which had gained over 160 points in the opening trade ahead of the RBI action, gave up most gains to touch a low of 28,242.25 as investors preferred to book profits.
The 30-share barometer closed the day up 91.26 points, or 0.32 percent, at 28,334.55.
The barometer had gained over 415.76 points in the previous two sessions.
The 6-member Monetary Policy Committee, headed by Patel, reduced the repo rate -- the short-term rate at which the central bank lends to banks -- to 6.25 percent. Consequently, the reverse repo rate has also come down by a similar percentage point to 5.75 percent.
The wider NSE Nifty added 31.05 points, or 0.36 percent, at 8769.15. Intra-day, it moved between 8,783.65 and 8,736.10.
Interest rate-sensitive sector stocks caught buyers' attention. The BSE banking index went higher by 0.42 percent to 22,491.47 while the realty index was up 0.96 per cent at 1,572.61.
The auto index too supported the rally and finished 0.05 percent higher at 22,786.81.
"Even though we had a surprise cut by RBI, the market remained muted. It was a breather post the bounce back after the geo-political issue. Given the neutral commentary from RBI there is limit room for further cut in the near term," said Vinod Nair, Head of Research, Geojit BNP Paribas Financial Services.
However, the Reserve Bank has warned of risks to growth next year, given the muted private investments and weak global demand, coupled with geopolitical risks. But is optimistic on meeting the Parliament-mandated inflation target of 2-6 per cent this financial year.
The broader markets too remained strong as retail investors engaged in widening their bets. The BSE small-cap index climbed 0.66 per cent to close at 13,208.73 and mid-cap by 0.50 per cent to close at record high of 13,549.51.
Brokers said RBI's decision surprised the market, which would boost liquidity and buoyed trading sentiment. They said, no change in CRR kept buying activity restricted.
SBI was up 1.59 percent, ICICI Bank 0.84 percent and HDFC Bank 0.21 percent.
Foreign portfolio investors (FPIs) picked up shares worth a net Rs 34.22 crore yesterday, provisional data showed.
Hong Kong's Hang Seng rose 0.45 percent while Japan's Nikkei was up 0.83 percent. Chinese markets are shut this week for the National Day holiday.