A surprising and growth-focused monetary policy announcement from the Reserve Bank of India (RBI) on Friday electrified investor sentiment on Dalal Street, propelling the benchmark indices to significant gains. The central bank's decision to cut key interest rates injected fresh optimism, leading to a broad-based rally.
Market Responds with Enthusiasm
The BSE Sensex surged by nearly 450 points to settle at 85,712 points, while the Nifty 50 climbed 153 points to close at 26,186. The rally was primarily driven by the RBI's unexpected move to reduce the repo rate by 25 basis points (0.25%). This decision came as a positive shock to the market, which had considered such action unlikely following robust Q2 GDP data.
Vinod Nair, Head of Research at Geojit Financial Services, noted the market's enthusiastic response. "This surprise (rate cut), combined with sharply lower inflation forecasts and supportive liquidity measures, triggered a risk-on sentiment across equities," he said. The rate-sensitive sectors, including automobiles, real estate, and non-banking financial companies (NBFCs), were at the forefront of the day's gains as lower borrowing costs are expected to reduce their expenses.
Banking Stocks Lead the Charge
The banking sector emerged as a major beneficiary of the RBI's policy stance. Heavyweights like State Bank of India (SBI) and HDFC Bank contributed the most to the Sensex's ascent. The BSE banking index, Bankex, ended the session 0.9% higher. Within the index, nine constituents closed in the green, with only Yes Bank finishing in negative territory.
The rate cut is anticipated to bolster banks' lending businesses by making credit cheaper, thereby stimulating demand across the economy. This prospect fueled strong buying interest in banking stocks throughout the trading session.
Positive Outlook for the Markets
Market experts believe the supportive environment created by the RBI could lead to a period of consolidation with a positive bias. Siddhartha Khemka, Head of Retail Research at Motilal Oswal Financial Services, highlighted the factors supporting this outlook.
"Markets are expected to consolidate with a positive bias, supported by RBI’s rate and liquidity actions, steady domestic flows and rising expectations of a Fed rate cut," Khemka stated. This confluence of domestic policy support and potential global monetary easing provides a constructive backdrop for Indian equities in the near term.
The day's trading action underscores the market's acute sensitivity to monetary policy shifts and reinforces the RBI's pivotal role in shaping economic and investment trajectories through its liquidity and rate decisions.
