India’s benchmark Nifty 50 logs best day in three weeks on RBI’s bumper policy support

India’s benchmark Nifty 50 logged its best day in three weeks as investors rallied behind the central bank’s bumper policy measures.

The Reserve Bank of India (RBI) cut the key lending rate by 50 basis points, exceeding the widely expected 25 basis point reduction. It also unexpectedly reduced the cash reserve ratio (CRR) requirement for banks by 100 bps and shifted its policy stance to neutral from accommodative.

The Nifty 50 and the BSE Sensex added about 1% on the day and for the week to close at 25,003.05 and 82,188.99, respectively. The benchmarks also recorded their first weekly gain after two straight weeks of decline.

“This is not business-as-usual monetary policy. It is a deliberate realignment based on a rare convergence of falling inflation, stable external accounts, and the need to pre-empt global slowdown spillovers,” said Arsh Mogre, economist at PL Capital.

The CRR cut is expected to boost banking liquidity by 2.5 trillion rupees, on top of the existing surplus of 3 trillion rupees, Barclays said.

This liquidity boost is expected to lower the cost of funding for banks and spur credit growth, powering rate-sensitive stocks.

All 13 sub-sectors climbed. Financials jumped 1.8% on the day to hit record highs, with heavyweight HDFC Bank touching a lifetime high level after an 1.5% surge. Non-bank lender Bajaj Finance gained 4.9%.

Reliance, rate-sensitive sectors lead Indian shares higher, RBI decision in focus

Real estate stocks soared 4.7% and automobile stocks added 1.5%.

The smallcaps and midcaps gained 0.8% and 1.2%, respectively.

“Excess liquidity tends to find its way into capital markets, especially in an environment of declining savings and deposit rates,” said Apurva Sheth, head of market perspectives and research at SAMCO Securities.

Bucking the trend, some railway stocks, including RailTel Corporation of India and RITES, slipped on the day after Kotak Institutional Equities said the recent surge in stocks contrasted their fundamentals.