- Raghuram Rajan impact: BSE Sensex, NSE Nifty down, volatility highRupee to dollar: Indian currency up nine paise vs US dollar at 60.84 after RBI monetary policy reviewRaghuram Rajan RBI effect: BSE Sensex closes 185 points higherRaghuram Rajan's RBI keeps repo rate unchanged, cuts SLR, stays tough on inflation
Markets, led by interest-rate sensitives, ended higher on Tuesday after the Reserve Bank of India (RBI) decided to cut Statutory Liquidity Ratio (SLR) by 50 basis points to 22%, while maintaining the status quo on the key rates. The BSE benchmark Sensex ended near 26,000, while the NSE’s Nifty closed above 7,700.
On Tuesday, foreign institutional investors (FIIs) bought shares worth $8.8 million, while domestic institutional investors bought shares worth $10.37 million, according to provisional data on the exchanges. FIIs have bought $11.75 billion worth of shares in YTD.
Experts say the cut in SLR underlines the RBI governor’s confidence in government’s fiscal consolidation process. “The governor has cut the SLR, while expressing his confidence that the government will bring down the fiscal deficit. The SLR could have a positive impact on the profitability of the banks. It will boost supply. However, it is too early to gauge the impact of the policy on interest-rate sensitive sectors,” said Raamdeo Agrawal, joint managing director at Motilal Oswal Financial Services.
On Tuesday, the 30-share BSE Sensex ended higher by 184.85 points or 0.72% at 25,908.01 points, while the broader 50-share Nifty gained 62.9 points or 0.82% to close at 7,746.55 points.
The RBI in a statement said SLR has been cut in anticipation of a recovery in the economy. “With the Union Budget for 2014-15 renewing commitment to the medium-term fiscal consolidation roadmap and budgeting 4.1% of GDP as the fiscal deficit for the year, space has opened up further for banks to expand credit to the productive sectors in response to its financing needs as growth picks up,” the statement read.
Among other measures, the RBI governor cut the ceiling for SLR securities from 24.5% to 24% of net demand and time liabilities (NDTL) of banks in the held-to-maturity category (HTM), which will deepen the bond market and make more room in the available-for-sale (AFS) category. The ‘Repo Rate’ and ‘Cash Reserve Ratio’ were left unchanged at 8% and 4%, respectively. The market rally was led by gains in Mahindra & Mahindra which gained 3.83%, followed by ONGC (3.18%) and Bajaj-Auto (2.96%). Among its peers, most Asian markets ended in the red on Tuesday.
The Kospi (-0.68%), Jakarta Composite (-0.20%), Taiwan Taiex (-2.02%), Shanghai Composite (-0.15%) and Nikkei (-1%) were among the losers. Among the key European indices, the FTSE 100, the DAX and the CAC were all