Mumbai: Financial stocks led Indian shares higher on Tuesday after the Reserve Bank of India raised interest rates as expected, and investors hoped policymakers would pursue a gradual tightening without stalling growth.
Shares in rate-sensitive sectors, including automobiles, real estate and infrastructure also gained as analysts had discounted a significant rise in interest rates in the near term.
Top lender State Bank of India rose 3.3% to Rs2,098.05, its biggest one-day percentage gain in more than five months.
The RBI raised its main short-term lending and borrowing rates by 25 basis points each, the second increase in as many months, to tame price pressures that have pushed wholesale price inflation to near double digits.
“The signal from the central bank is clearly that it wants to suck out liquidity, but also that it wants growth funds in place,” said Deven Choksey, managing director at KR Choksey Shares & Securities.
The central bank, which until recently had focused monetary policy largely on encouraging economic recovery, had said on Monday the weight of policy balance may have to shift to containing high inflation.
The 30-share BSE index ended up 0.34%, or 59.90 points, at 17,460.58, snapping a 5-day losing streak. Nineteen of its components rose. The broader 50-share NSE index closed up 0.5% at 5,230.10 points.
The market trimmed gains of 0.9% at one stage as investors were cautious the central bank may raise rates again to rein in inflation.
Still, bank stocks were in demand with uncertainty over interest rates resolved for now, analysts said. The sectoral index closed 1.5% higher at 10,679.61 points.
No. 2 lender ICICI Bank gained 1.5% to Rs933.60, while leading mortgage firm Housing Development Finance Corp added 0.3% to Rs2,700.90.
“I don’t think lending rates will rise till 30 June. We will take a review of rates only after the base rate becomes effective from 1 July,” said A.C. Mahajan, chairman and managing director of state-run Canara Bank.
Private lender Axis Bank rose 2.5% to Rs1,186.50 after posting a 32% jump in March quarter profit.
Real estate shares rose sharply, with investors relieved the threat of higher mortgage rates had been pushed back for now. The BSE Realty index gained the most among sectoral indices, up 3.1%.
Gains were led by top-listed developers DLF and Unitech, which rose 3.2% and 4.6% respectively.
Export-focused software exporters lost ground as the rupee strengthened nearly 0.5% to near a 19-month-high struck earlier this month.
Leading outsourcer Tata Consultancy Services slipped 2.7% to Rs789.60, after initially rallying more than 2% following its best quarterly growth in three years.
Infosys Technologies lost 1% at Rs2,724.90, while Wipro shed 1.3% to 694.70 rupees.
Hero Honda Motors Ltd, fell 2.4% to Rs1,851.65 after the leading bike maker cautioned on Monday that rising commodity prices could hit margins in future quarters.
In the broader market, advances were ahead of losers in a ratio of 2.7:1 on relatively strong volume of 401 million shares.