Mumbai: A surprise rate cut by the RBI this week provided a big boost for the stock markets and sent the key indices soaring to nearly one-and-a-half months high on the back of robust gains in realty, banking and auto segments.
The benchmark S&P BSE Sensex vaulted by over 663 points to end at 1-1/2-month high of 28,121.89. Similarly, the wide-based CNX Nifty of the NSE crossed 8,500-mark for the first time after a month and ended at 8,513.80, a gain of 229.30 points, or 2.77 percent, over the last weekend close.
The Reserve Bank of India (RBI) on Thursday morning lowered the benchmark repurchase rate (repo) under the liquidity adjustment facility (LAF) by 25 bps to 7.75 percent, the first reduction since May 2013, on easing inflation.
On that day, the Sensex registered its biggest single- day rally in over five years and zoomed a whopping 728.73 points , or 2.66 percent, on massive across-the-board buying.
Fall in the repo rate may provide leeway to banks to cut their lending rates to improve liquidity in housing and auto sectors, leading to more off-take of money by public and corporate sectors.
Soon after the RBI move, a clutch of banks lowered their base rate (minimum lending rate), while some others, including the biggie SBI, indicated they will follow suit.
Investor wealth reclaimed the Rs 100-lakh crore mark for the second time. However, it was for the first time it remained above that level at close of trading. During the week, investors got rich by Rs 3,11,737 crore.
The BSE 30-share barometer resumed the week on a firm note but fell to a low of 27,203.25 in the mid-week on drop in the brent crude prices to USD 45 a barrel, a six-year low, amid ebbing hopes of a rate cut after retail inflation slightly rose to 5 percent in December and industrial production (IIP) grew 3.8 percent in November.
Besides realty, banking and auto shares, stocks from capital goods, FMCG, power, consumer durable and IT also attracted good buying interest while metal and refinery counters were at the receiving end.
Metal stocks suffered the most following slow-down in Chinese economy.
Meanwhile, the trade deficit narrowed to 10-month low in December 2014 on fall in importers while exports also declined in December 2014 over December 2013.
The Ministry of Commerce and Industry Friday said that some Japanese companies are seriously considering their future plans to invest in India amounting to about Rs 75,000 crore over the next 2-3 years, which also boosted the outlook.
On the global front, most Asian stocks showing weak trend during the week on concern that Europe's stimulus plans may not solve the euro region's economic woes amid an unexpected fall in America's retail sales fuelled concern over growth.
Back home, Wednesday, government data showed Wholesale Price Index (WPI) inflation for December rose marginally to 0.11 percent.
"We believe that this is a beginning of a big rate cut cycle. We expect a further 125 bps over the next 12 months," said Morgan Stanley analyst Chetan Ahya in a report.
The rate cut ahead of the scheduled RBI policy meet on February 3 will result in "more money in the hand of the consumers," Finance Minister Arun Jaitley said, while bankers started cutting rates within hours of the announcement.
"Indian markets were languishing for past few sessions due to lack of any triggers. This is a good enough trigger for markets to cheer. RBI has let down its guard a bit and clearly spelt out its comfort on inflation. Now, if reforms also come in, India could be in a sweet spot for this year as well as beyond," said Kotak Securities CEO Kamlesh Rao.
Corporate earnings, foreign funds inflow, the movement of the rupee against the dollar, global crude oil prices and also outcome of the European Central Bank's monetary policy meet, will dictate the markets next week.
Overall, 23 scrips out of the 30-share Sensex pack ended higher while others finished lower.
Major gainers from the sensex pack were HUL (9.14 percent), BHEL (7.64 percent), HDFC (7.29 percent), Larsen (6.17 percent), M&M (5.36 percent), Maruti (4.27 percent), SBI (4.06 percent), Axis Bank (3.94 percent), Dr Reddy (3.69 percent), Tata Power (3.32 percent), HDFC Bank (2.75 percent), Sun Pharma (2.55 percent) and Infosys (1.96 percent).
However, Hindalco dropped by 10.68 percent followed by SSLT 6.69 percent, Tata Steel 4.17 percent, Bharti Airtel 3.89 percent, Hero Motocorp 3.22 percent and Gail India 2.46 percent.
Among S&P BSE sectoral indices, Realty spurted by 5.74 percent, CG 4.77 percent, FMCG 4.07 percent, Power 3.47 percent, Bankex 3.16 percent, Auto 2.61 percent, CD 2.23 percent and IT 2.22 percent while Metal lost 4.15 percent and Oil&Gas 0.86 percent.
The total turnover at BSE and NSE rose further to Rs 18,662.50 crores and Rs 88,774.58 crores respectively from Rs 15,597.01 crores and Rs 83,908.67 crores last week.