The benchmark indices rallied nearly 1 per cent after the Reserve Bank of India (RBI) pledged to maintain an accommodative stance for as long as necessary to support growth, amid a new wave of infections.
The Sensex rose 460 points, or 0.94 per cent, to close at 49,662, while the Nifty50 added 136 points, or 0.92 per cent, to end the session at 14,819.
Banking stocks contributed to gains, with the Bank Nifty soaring 1.5 per cent. Other rate-sensitive sectors also performed well, with the Nifty Auto gaining 1.6 per cent and Nifty Realty rising 0.96 per cent.
The RBI’s Monetary Policy Committee held the benchmark repurchase rate at a record low of 4 per cent — a decision predicted by all 30 economists surveyed by Bloomberg.
Sampath Reddy, Chief Investment Officer at Bajaj Allianz Life, said: “The policy has been dovish as supported by fall in bond yields. This should benefit the equity markets as borrowing costs will be in check for some time.”
Yields on the 10-year government security fell 40 basis points on Wednesday. The central bank pledged to buy Rs 1 trillion ($13.5 billion) of bonds this quarter, to cap borrowing costs to support an economy facing a resurgence of coronavirus infections.
“The Indian market is invigorated by the RBI’s long-term dovish stance to maintain an easy money policy till the economy reverts to normalcy. A big cheer is the bond buying program of Rs 1 trillion to ensure liquidity and flatten the long-term yields curve. The RBI’s decision to maintain its high GDP growth forecast also helped the market to calm down its fears which had increased post the second wave infection and stringent lockdowns,” said Vinod Nair, head (research), Geojit Financial Services.
A new wave of Covid cases has brought back localised lockdowns in a number of states, raising concerns over business recovery.
The country is reporting daily new infections of close to 100,000, and the riches state Maharashtra has emerged the epicenter.
“Localised and regional lockdowns could dampen the recent improvement in demand conditions and delay the return of normalcy,” RBI Governor Shaktikanta Das said.
Barring three, all Sensex components posted gains on Wednesday. State Bank of India and ICICI Bank gained over two per cent each. Overall, 1,837 stocks advanced and 1,111 declined on the BSE.
The Indian markets have underperformed their global peers this week. On Monday, the Sensex had following imposition of restrictions in Maharashtra to contain the rapid increase in Covid-19 infections.