RBI bumper rate cut lifts Sensex by 162 points; Nifty ends above 7,800

Financials were the top gainers led by HDFC, HDFC Bank along with select index heavyweights.

Benchmark shares indices recouped early losses to end higher on expectations that higher-than-expected rate cut by the Reserve Bank of India would boost growth.

The 30-share Sensex ended up 162 points at 25,779 and the 50-share Nifty gained 48 points to end at 7,843 .

The broader market ended mixed, the BSE MidCap index ended up 0.4% and the BSE SmallCap index closed 0.1% lower.

Market breadth ended negative with 1,354 losers and 1249 gainers on the BSE.

The Reserve Bank of India at its fourth bi-monthly monetary policy review today reduced the repurchase, or repo, rate by a higher-than-expected 50 basis points to 6.75%.

The street had expected a rate cut of 25 basis points. However, the central bank lowered its real GDP forecast for FY16 by 20 basis points to 7.4% compared with 7.6% earlier.

Expert views on RBI policy

"Clearly the focus has shifted from being conditionally optimistic on inflation to being accomodative towards reviving growth.

Key determinant of this change in stance has been the sharp and sustained drop of commodities since August which has led to a downward revision of the inflation outlook for FY16 and FY17. We believe the central bank would now work towards ensuring quick pass-through of its policy stance to the overall cost of funds in the system. There is acknowledgement of weaker growth as well with the FY16 GDP growth being cut to 7.4% from 7.6%," said Tirthankar Patnaik, Chief Strategist, Mizuho Bank.

"We believe there was substantial scope for interest rates to come down in India as a result of developments in commodities prices across the world. Hence, a 50 bps rate cut is a step in the right direction to improve the long-term growth of the economy.

Going forward the key factors required for driving growth would be Goods and Services Tax (GST), resolution of Nonperforming loans (NPL) problems and ease of doing business.

Over a period of time, we expect further moderation in interest rates from current levels and investors should continue to invest in duration with an aim to benefit from the same.

On the equity side, as long as emerging market redemptions continue, Indian equities present a good investment opportunity; the fact that Foreign Institutional Investors (FIIs) are selling is a strong positive for investors to consider investing for the long term. " said S Naren , CIO, ICICI Prudential AMC. “We at Kotak AMC had expected a 50 bps rate cut for the remainder quarter of the year.

Yet, the alacrity and the swiftness of the policy response by RBI has positively surprised the market.

The inflation pressure is declining and the long term inflation trajectory is on the downward slope as supply bottlenecks continue to open up.

This creates an enabling environment for a more accommodative policy stance in future.

Moreover, with global economy increasingly seeing India as a lucrative growth spot, it will be incumbent on the government and the central banker to work in tandem to further boost opportunities.

We believe that equities with 2-3 year timeframe, and duration funds with 1 year plus timeframe are may provide competitive return for the investor.” said Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mutual Fund "0.5% of repo rate cut by the RBI comes as a great pre Diwali bonanza to all Home buyers and hopefully should trigger positive sentiments for the Industry.

The timing too is good as developers await the festival season for new launches.

This could bring some relief and light to the industry. Specifically we do expect the affordable housing segment being impacted positively . This rate cut coupled with the interest subsidy scheme announced under the Pradhan Mantri Awas Yojna Mission Housing for all 2022, will see the affordability quotient further going up for the EWS and LIG consumer segments," said Deepak Joshi –President & Chief Business Officer- Religare’s Affordable Housing Loans business.

Global markets

Asian equities ended lower on Tuesday with commodity stocks dropping the most amid sharp decline on Wall Street in overnight trades and sluggish economic data from China. Profit of Chinese industrial firms declined 8.8% in August compared to August 2014.

China's Shanghai Composite ended down 2.1% while Hang Seng dropped 3% and Japan's Nikkei ended 4.2% lower.

European equities which opened lower trimmed losses and were trading mixed following a rebound in Glencore shares after the sharp plunge of 31% in the previous session on concerns that it has been unable to reduce its huge debt burden.

The FTSE was down 0.5% while DAX was up 0.1% and CAC-40 was trading flat.

Sectors and stocks

Rate sensitive sectors were the top gainer led by Realty, Bankex and Auto indices.

However, Metal index was the top loser while Healthcare, Oil and Gas were marginally down.

HDFC was the top Sensex gainer up 3.5% after Reserve Bank of India Governor, in its monetary policy statement today said it is proposed to reduce the risk weights applicable to lower value but well collateralised individual housing loans. At present, the minimum risk weight applicable on individual housing loans is 50%.

Among other housing finance companies, LIC Housing Finance, GIC Housing Finance were up 6% each.

In the banking pack, HDFC Bank, ICICI Bank and SBI ended up 0.1-1.2% each on hopes of pick up in credit growth on the back of lower interest rates.

Auto stocks gained on hopes that lower interest rates on auto loans would boost demand.

Maruti Suzuki, Tata Motors ended up 1.2-3.1% each. In the Realty space, HDIL, DB Realty, DLF, Unitech, Indiabulls Real Estate ended up 3-6% each. IT shares also pared early losses to end mixed with Infosys up 1.2% while TCS ended down 0.1% and Wipro eased 1%. Other Sensex gainers include, ITC and Reliance Industries. Metal shares ended weak amid weak economic data from China.

Tata Steel, Vedanta and Hindalco ended down 3.5-5.4% each. Pharma shares also eased on profit taking after recent gains. Dr Reddy's Labs, Sun Pharma and Cipla ended down 0.9-2.7% each. Among other shares, Tree House Education and Accessories dipped 4%.

According to Business Standard report, proxy advisory Stakeholders’ Empowerment Services (SES) has raised concerns over high levels of trade receivables in the company's balance sheet.

GM Breweries gained 2% on the National Stock Exchange (NSE) in an otherwise volatile market, on back of heavy volumes.

TGB Banquets and Hotels ended 1.2% on the National Stock Exchange (NSE) ahead of board meeting tomorrow, September 29, 2015 to discuss and consider the various proposals received for purchase of the Surat property of the company.