Banks welcomed the RBI statement saying the implementation of Indian Accounting Standards (IndAS) deferred by one year and lower inflation forecast for current financial year 2018-19.
Bulls took complete control over Dalal Street on Thursday as the Sensex surged more than 600 points intraday on easing trade war concerns and lower inflation forecast by RBI. Investors' wealth increased by Rs 2.6 lakh crore.
Overall there was sharp rally across sectors barring FMCG (that gained 0.86 percent).
Banks welcomed the RBI statement saying the implementation of Indian Accounting Standards (IndAS) deferred by one year and lower inflation forecast for current financial year 2018-19. PSU Bank index rallied 5 percent followed by Nifty Bank, Financial Services and Private Bank that gained around 2.5 percent.
The 30-share BSE Sensex was up 577.73 points or 1.75 percent at 33,596.80 while the 50-share NSE Nifty closed above 10,300-mark for the first time since March 15 this year, rising 196.80 points or 1.94 percent to 10,325.20.
"With revised lower Inflation trajectory by RBI, Equity markets were clearly enthused. We have been constantly advising clients to accumulate good quality stocks in a market which has corrected both in terms of valuations & price points. We continue to be bullish on domestic themes where there is good predictability of earnings growth," Devang Mehta, Head – Equity Advisory, Centrum Wealth Management said.
He further said there has been consistent improvement in certain macros & important data points like better than expected 3rd quarter GDP, pick up in the manufacturing sector & industrial production, excellent auto sales numbers & pick up in credit growth.
The Reserve Bank of India said the Monetary Policy Committee (MPC) expectedly kept repo rate unchanged at 6 percent, with lowering CPI inflation projection for 2018-19 to 4.7-5.1 percent in first half of FY19 (from 5.1-5.6 percent earlier) and 4.4 percent in second half (from 4.5-4.6 percent earlier), including the HRA impact for central government employees, with risks tilted to the upside.
"GDP growth is projected to strengthen from 6.6 percent in 2017-18 to 7.4 percent in 2018-19 – in the range of 7.3-7.4 percent in first half of FY19 and 7.3-7.6 percent in second half– with risks evenly balanced," RBI said.
"The MPC continued to be cautious on upside risks to inflation even as it revised its estimates lower. In line with expectations, the March 2019 and March 2020 inflation is expected to remain around 4.5 percent. With inflation estimated to be in a kind of “no-man’s land” (neither too high nor too low), we maintain our call that the RBI will remain on an extended pause," Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities said.
One needs to carefully observe the impact of food prices in the near term, risks of fiscal slippages, domestic growth recovery, and evolving global macro conditions (trade wars, monetary policy cycle, and commodity prices) to gauge the RBI’s next move, he added.
Akash Jain, Vice President Equity (Research) at Ajcon Global Services believes that RBI may not hike interest rates in next policy as well but it all depends on the onset of monsoon and its progress. "The only risk to our belief of RBI not hiking rates is rising crude oil prices and risk of populist spending by current government which may drive inflation higher.
Global markets were strong in trade as recent investor worries over an elevation in US-China trade tensions abated. The overall sentiment was driven by the news that the US is willing to negotiate with China after the latter announced retaliatory measures against recent proposals for US tariffs on a range of Chinese products.
In Asia, Japan's Nikkei 225 advanced 1.53 percent while South Korea's Kospi gained 1.2 percent. Hong Kong, China and Taiwan markets were closed for the Ching Ming Festival on Thursday.
Euroepan stocks - France's CAC and Germany's DAX were up 1.7 percent while Britain's FTSE rose 1.3 percent at the time of writing this article.
Back home, the softening of bond yields by 15 basis points intraday also boosted banks. Canara Bank, Bank of India, Syndicate Bank, Bank of Baroda, Union Bank, SBI and Indian Bank rallied 5-9 percent.
ICICI Bank, Kotak Mahindra Bank, Yes Bank and Axis Bank gained up to 3.5 percent while Shriram Tansport, Bajaj Finserv, M&M Financial, Indiabulls Housing, Bajaj Finance, PFC and Bharat Financial rallied up to 6 percent.
Vedanta (up 5.69 percent) and Hindalco (6.65 percent) were biggest gainers among Nifty50 stocks while Tata Steel was up 3.55 percent, which all lifted Nifty Metal index 4 percent.
L&T gained 2.5 percent on bagging Rs 3,376 crore worth of orders while Tata Motors (up 1.9 percent) and Eicher Motors (2.6 percent) extended previous day's gains.
Only 2 stocks among Nifty50 ended in the red, which were Cipla (down 1.66 percent) and Bharti Airtel (down 0.29 percent).The broader markets also participated in the rally, with the Nifty Midcap index rising 2 percent. About six shares advanced for every share falling on the NSE.