Markets end sharply higher led by surge in tech, bank stocks

20 October 2008

The market ended sharply higher. Positive European and Asian markets, and repo rate cut were the actual triggers for today's upmove in markets. Buying was seen in technology, banking, FMCG, pharma, metal and few oil stocks. However, realty, power, few auto and capital goods stocks were under pressure. Selling was also seen in midcap and small cap stocks.

RBI's move of 100 bps repo rate cut with immediate effect has played a big role in today's trade. Now, the current repo rate (the rate at which banks borrow from RBI) stood at 8% from earlier 9%. This was the first repo rate cut by RBI since August 2003. RBI had already cut cash reserve ratio (CRR) by 250 bps in last two weeks. All these moves are to increase liquidity in the banking system.

Finance Minister P Chidambaram has said that the repo rate cut was consistent with the government's objective to moderate inflation and ensure satisfactory growth rate. The repo rate cut will enthuse investors to invest more, he said.

Yogesh Agrawal, Chairman, IDBI said this move is a strong signal for growth. However, he said that it would be too predict whether interest rates would come down. ''Whether interest rates would actually come down would depend on the demand for credit, which still remains strong, and the amount of resources that banks can raise, as it is essentially a liquidity issue.'' He added that he plans to maintain the annual deposit rate at 10-10.5%.

RBI said that global uncertainty is transmitting to other countries. Global financial situation stays uncertain and unsettled. Repo Rate cut will maintain financial stability, he said.

Banking stocks have surged since then. Bankex shot up by 2.08% or 149.03 points, to settle at 5,695.72.