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Markets: Sensex, Nifty50 zoom after RBI, Modi-return sends positive signals

Markets: Sensex, Nifty50 zoom after RBI, Modi-return sends positive signals

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Virendra Pandit

New Delhi: With Narendra Modi’s re-election to lead the NDA government for a third consecutive term, signaling political and economic stability and investors’ confidence, and the RBI keeping optimism about the economy alive, India’s benchmark equity indices zoomed back on Friday.

The Reserve Bank of India also upped the real GDP growth projection for 2024-25 to 7.2 percent from 7.0 percent projected earlier while the inflation forecast was retained at 4.5 percent.

Reacting quickly, the stock markets shot up in trade, aided by bank stocks, after the central bank left interest rates unchanged during the June monetary policy meeting. Its Monetary Policy Committee (MPC) kept it at 6.5 percent for the eighth consecutive time as it awaits retail inflation to move to the 4 percent target on a durable basis. This also comes against the backdrop of strong growth momentum. The MPC’s decision was taken with a 4:2 majority.

The six-member rate-setting MPC, headed by RBI Governor Shaktikanta Das, also persisted with its “withdrawal of accommodation” stance to ensure that inflation progressively aligns with the target while supporting growth. In its second meeting of FY25, the committee met from June 5 to 7.

The MPC’s last rate action was on February 8, 2023, when it increased the repo from 6.25 percent to 6.50 percent.

FY24 ended on a high note for the economy, with GDP growing at 8.2 percent against 7 percent in FY23.

Though retail or consumer price index-based (CPI) inflation softened to an 11-month low of 4.83 percent in April from 4.85 percent in March, it remains above the MPC’s 4 percent target.

On the bourses, the benchmark BSE Sensex soared 1,719.5 points intraday to hit a high of 76,795. The Nifty50 also surpassed the 23,300 level to hit an intraday high of 23,320.

In the broader markets, the BSE MidCap, and SmallCap indices advanced up to 2 percent. The rally was fuelled by gains in bank stocks which suffered losses earlier.

From a low of 49,080.45, the Nifty Bank index surged nearly 2 percent to hit a high of 49,932 levels.

All 12 constituents of the index gained, led by Bandhan Bank (up 3 percent), Axis Bank (1.8 percent), ICICI Bank (1.5 percent), HDFC Bank (1.26 percent), and Federal Bank (1.17 percent) as of noon.

On the Nifty Financial Services index, Bajaj Finance rallied 3.8 percent, Bajaj Finserv 2.8 percent, IDFC 1.28 percent, and Muthoot Finance 1 percent.

By comparison, the Nifty Bank, and Financial Services indices were up 1.2 percent each vs a 1.6 percent rise in the frontline Nifty50.
Analysts said the RBI’s upward revision in India’s GDP growth forecast for FY25 gave market bulls a shot in the arm. This revision calmed market nerves, especially with political stability returning with the swearing-in of the new government, expected on Sunday, and the ongoing global uncertainty.

Das’s emphasis that the central bank’s decision would be influenced by domestic factors, even though they will be watchful of the external environment, and not follow the US Federal Reserve (US Fed) blindly, reinforced that RBI could cut policy interest rates by the end of the calendar year, provided domestic inflation moderates.

The RBI Governor emphasized several positive aspects of the banking and financial sector. Bank balance sheets remain healthy, liquidity has shifted from a deficit to a surplus in recent months, and the banking system remains robust. The gross non-performing assets (GNPAs) for scheduled commercial banks (SCBs) and non-banking financial companies (NBFCs) are below 3 percent of total advances as of March 2024, with NNPA at a record low of 0.6 percent.


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