Indications coming from the RBI that it would not touch interest rates before April, cheered the markets today. The effect was largely seen on interest rate sensitive sectors like auto, realty and banking that gained the most. In the broader markets, there were almost two gainers for every stock that lost ground.
The BSE Sensex and NSE Nifty closed with gains of around 230 points (1.4%) and 70 points (1.5%) respectively. Mid and small cap stocks followed suit. The BSE Midcap and BSE Smallcap indices closed up by 0.8% apiece.
RBI's deputy governor Dr. Subir Gokarn told media earlier today that the central bank is not going to tinker with interest rates before April. As he said, "Please don't expect any action between now and the next announcement (April 20) unless there is a completely unanticipated event." These statements from the RBI come despite the fact that rising inflation is posing serious challenges to the bank's monetary policy. However, the fact that higher interest rates would come in the way of the economy's fledgling recovery must have led it to maintain its interest stance as of now. Anyways, today's vibes from the RBI cheered the markets and the biggest gains were seen in interest rate sensitive sectors like auto, realty and banking.
Auto stocks were amongst the best performers today. The BSE-Auto index closed 2% up. Major gainers here included Hero Honda, M&M, and Tata Motors. This comes after the past few days of hammering that these stocks have received. Some like M&M and Tata Motors have lost almost 15% over the last month. A large part of selling in these stocks has been owing to issues like high valuations and risks of rising interest rates that can curtail demand for these companies' vehicles in the short to medium term. With the markets worried about the withdrawal of government stimulus and the negative impact that this can have on the broader economy, interest rate sensitive sectors like auto (apart from realty) have been affected the most.
Software stocks also closed strong today. Key gainers here included the likes of TCS and Wipro. Infosys also closed in the positive. The company's top management has indicated that it is seeing a return in discretionary spending by clients. This indicates a recovery in the business sentiment for IT offshoring, and is in line with what most managements talked about after the recently concluded December 2009 quarter results. Anyways, Infosys also sees protectionism in some economies as one of the key concerns that can elongate the recovery process.