Markets rise on rate cut, Spanish debt sale

Indian shares rose on Tuesday after the Reserve Bank of India surprised the Street with a higher-than-expected 50-basis-point cut in policy rates and adequate demand at a Spanish government debt auction eased risk aversion.

The Bombay Stock Exchange benchmark, Sensex, traded flat in early trade, ahead of the RBI monetary policy at 11:00 am.

The 30-stock index briefly rose 200 points after the rate cut announcement, but gave up half those gains as the central bank's cautious outlook on further cuts tempered enthusiasm.

The markets started to climb back again after 2:00 pm, as major European markets rallied after a Spanish debt auction went through smoothly and a survey showed rise in German analyst and investor sentiment.

The BSE bellwether finally ended up 1.2 per cent, or 207 points, at 17,357.9, its highest close since April 4. At the National Stock Exchange, the 50-stock Nifty index climbed 1.2 per cent, or 63.5 points, to 5,289.7.

"We think the cut is a right step. The market is focused on Europe, with Spanish 10-yr yields above 6%, economic data coming off and fears of a repeat of the 2011 pattern." NICK PAULSON Ellis, Country Head, Espirito Santo Securities (India)

"The RBI governor has taken a bold step by cutting rates by 50 bps and targeting growth. However, the expectations of further cuts this year have now come down." R VENKATARAMAN Managing Director, IIFL (India Infoline)

"The overall headroom for rates to decline is likely to be 75-100 basis points over the year, a major positive for the corporate earnings growth outlook" DINESH THAKKAR Chairman and Managing Director, Angel Broking

"The central bank has taken a bold step which would be welcomed by the market. It is a definite silver lining the market would like to catch on." NILESH SHAH President (corporate banking), Axis Bank

"RBI has clearly stated that fuel price increase is a pre-requisite for future rate cuts. We believe it has done its bit by reducing rates by 50 basis points. So, this once again brings the focus on the fiscal initiatives to be taken by the government," said Dipen Shah, head of fundamental research at Kotak Securities. "The future direction of the market hinges on how fast the government is able to restart the reforms process. Till these initiatives are taken, markets may remain range-bound and be dictated more by the quarterly numbers and global markets."

Real estate shares rose on expectations the demand for housing would pick in near-term, as banks take RBI's cue and slash lending rates.

DLF shares closed 2.9 per cent up and Housing Development and Infrastructure ended 4.1 per cent up.

The BSE Realty index, the top gainer among the sectoral indices, rose 2.4 per cent.

Among the major gainers on the Sensex, Oil and Natural Gas Corporation gained 3.8 per cent to Rs 268.9 on hopes that prices of subsidised fuels would be revised upwards after RBI urged the government to raise prices to ensure macroeconomic stability.

Coal India rose 3.2 per cent to Rs 350 after its board agreed to sign new fuel supply agreements with power producers, with an average penalty of just 0.01 per cent for supply shortfalls.

Shares of Anil Ambani-led Reliance Communications and Reliance Infrastructure gained five per cent each on expectation that rate cuts would help lower the interest cost burden of these companies.

At 7:00 pm, benchmark indices in the UK, Germany and France were trading one-two per cent higher.

"The over-arching theme in equity markets is still the re-ignition of tension in financial markets on euro zone concerns, and this is something that may stay with us for some time," said Gerhard Schwarz, head (equity strategy), Baader Bank.