Sensex zooms on RBI's new year wishes

Snapping its six-day losing streak markets surged over 1% higher after after the Reserve Bank of India (RBI) kept key policy rates unchanged in its mid-quarter monetary policy on Wednesday.  
 
The central bank's decision came as a pleasant surprise to the street which had factored in a 25bps repo rate (the rate at which RBI lends money to commercial banks) hike and was speculating on whether the RBI would hike cash reserve ratio (CRR), which is the minimum fraction of the total deposits which commercial banks have to keep with RBI.
 
The repo, Cash Reserve Ratio (CRR) as well as Marginal Standing Facility rate were kept unchanged. The repo rate stands at 7.75%, CRR at 4% of banks' net demand and time liabilities while MSF rate at 8.75%
 
The 30-share Sensex was up 248 points at 20,859 and the 50-share Nifty was up 78 points at 6,217.
 
"I think they have merely postponed the rate hike momentum. RBI seems to be keeping its ammunition once Fed taper starts. The decision seems fine in light of the impending taper worries. Regarding taper, markets will get worried if the taper is aggressive. If the taper comes at US$5 bn or US$10 bn initially and then tone is not hawkish then Indian markets should be alright," said Sonam Udasi, SVP and Head of Research, IDBI Capital.
 
Market will now be keenly watching the of a Federal Reserve meeting on Wednesday for some clarity as to when the central bank will begin trimming its stimulus.
 
Inflation peaking in the month of November prompted marketmen to think that a repo rate hike was inevitable owing to RBI governor Raghuram Rajan's inflation targeting stance.
 
"Recent readings suggest that headline inflation, both retail and wholesale, have increased, mainly on account of food prices.  While CPI and wholesale price index (WPI) inflation excluding food and fuel have been stable, despite a steady and necessary increase in administered prices towards market levels, the high level of CPI inflation excluding food and fuel leaves no room for complacency," said the RBI mid-quarter money policy review statement.
 
Citing slowing growth in the economy and the prospect of easing retail prices, the central bank decided to keep key rates unchanged. Rajan however warned against being complacent on the inflation front and said would he be ready to act even in between policy reviews if headline or core inflation do not ease as expected but in a calibrated manner.
 
 
The Consumer Price Index (CPI) inflation numbers rose to 11.24% in November compared with 10.17% in the previous month. The Wholesale Price Index (WPI) inflation data for November rose to 7.52% compared with 7% the previous month.
 
The 30-share Sensex shot up 248 points to close at 20,860 levels and the broader 50-share Nifty ended 78 points higher at 6,217 levels.
 
The rupee was trading higher after the RBI's rate hike. The rupee was at 61.97 versus 62.01 close on Tuesday.
 
Asian markets were trading higher with Japan's benchmark index Nikkei leading the gains on reports that the Prime Minister may shortly unveil plans to boost the economy. Nikkei was up 1.6% while Hang Seng was up 0.5%. Shanghai Composite and Straits Times were trading flat.
 
The BSE Bankex was the top gainer among the sectoral indices on the BSE up 2.6% followed by Capital Goods, Realty, Power, Oil and Gas and Auto indices.
 
Bank shares were among the top Sensex gainers. HDFC, ICICI Bank, HDFC Bank and SBI were up 1.8-3% each.
 
Other Sensex gainers include, Reliance Industries, L&T, TCS, ONGC, M&M and Infosys among others.
 
Among other shares, JK Tyre and Industries has dipped over 4% to Rs 153 after the company allotted over 4 million warrants to the promoters at a price of Rs 115 per share. The board has allotted 4.3 million warrants to the promoters/promoter Group on preferential basis at a price of Rs 115 per warrant, each warrant convertible into one equity share of the face value of Rs 10, JK Tyre and Industries said in a BSE filing.
 
In the broader market, the BSE Mid-cap index was up 0.9% and the Small-cap index was up 0.6%.
 
Market breadth was strong with 1,081 gainers and 587