The Indian markets reacted very positively to the RBI's decision to maintain a near term status quo with regard to interest rates. Measures to improve the liquidity scenario in the banking sector also aided sentiments. While banking stocks made a strong recovery from the day's lows, stocks from the IT, auto and commodity sectors led the pack of gainers.
The BSE Sensex edged higher by around 220 points (up 1.1%) whereas Nifty closed with gains of about 56 points (up 0.9%). BSE Midcap and small cap indices also fared well, finishing the day higher by around 0.4% each. While most other Asian indices closed in the red today, Europe too has opened on a cautious note. The rupee was trading at Rs 45.36 to the dollar at the time of writing.
The RBI in the monetary policy review today left interest rates unchanged after six increases since March 2010. Although the headline inflation (WPI) eased to 7.5% in November, it is still way above the central bank's comfort level of 5.5%. The RBI has been the most aggressive major central bank in Asia this year, lifting key lending and borrowing rates by 1.5% and 2% respectively, as surging prices spurred by rising food costs threatened to hurt GDP growth rates. The move to allow banks to maintain SLR at 24% instead of 25% will also ease the liquidity scenario in the banking sector. Stocks from the sector including SBI, PNB and IDBI Bank closed higher today.
The optimism in Indian markets is despite the cautious undertone in the rest of Asia and in Europe as risk of sovereign defaults worries investors. Warning from rating agency Moody's on Spain's debt has raised possibility of another bailout following those of Greece and Ireland. Investors fear that countries like Spain or Portugal will have trouble handling high leverage and require emergency help. Spain is considered a risk because it is still struggling to emerge from nearly two years of recession, has the highest unemployment rate in the eurozone and a swollen deficit.
Oil refining major ONGC has announced bonus issue of shares in the ratio of 1:1 in addition to a stock split (2:1). The sub division of shares will take place before the government dilutes 5% stake in the company to raise US$ 3 bn as part of its disinvestment programme. ONGC managed to lower its subsidy burden and increase profits in 2QFY11 by passing on the rise in oil and gas prices to customers. The gross realisation from crude oil was US$ 79.21 per barrel during the quarter, 12% higher than the US$ 70.49 per barrel during 2QFY10.