RBIs rate cut boosts markets; bank, realty, CG, oil stks lead

03 November 2008

RBIs move of rates cut to increase liquidity and positive global cues helped the markets to remain on upsurge on the first day of week as well. The Nifty ended above 3000 mark while the Sensex close above 10300 level. Huge buying was seen in capital goods, realty, banking, oil and metal stocks. Midcap and small cap stocks followed the same trend.

Reliance Industries, L&T, SBI, ICICI Bank, HDFC, Bharti Airtel, ONGC and NTPC were biggest contributors in today's rally.

The Sensex has hit an intraday high of 10,373.17, before closing the session at 10,337.68, with a gain of 549.62 points or 5.62% over previous close. The Nifty jumped 5.48% or 158.25 points, to settle at 3043.85, after touching a high of 3062.05. Sensex and Nifty surged 35% from recent lows in five trading sessions.

The Reserve Bank of India, or RBI, has cut the repo rate by 50 basis points to 7.5% on Saturday, which got effective from today. It has also cut CRR, or cash reserve ratio, by 100 bps in two stages to 5.5%. The 100-bps CRR cut will infuse Rs 40,000 crore into the system, the RBI said.

The central bank will also cut SLR to 24% by 100 bps from November 8 onwards. It has allowed refinance to banks up to 1% of NDTL, or net demand and time liabilities, for 90 days.

Rajeev Malik of Macquarie Capital Services feels the RBI action should have come in along with the credit policy. He believes the measures by the RBI should have been pre-emptive and said the central bank needs to ease rates far more aggressively. He expects the RBI to cut repo by another 100 bps over the next six months and to start moving repo, reverse repo in tandem next year.