Mumbai: Indian shares on Tuesday rose 0.3% tracking firm world equities, with auto stocks leading the gains and a recovery in annual monsoon rainfall also boosting sentiment.
Banks rose with the sector index gaining 0.7% even as the central bank tightened the monetary policy more than expected, as the underlying tone though hawkish was not harsh, dealers said.
The Reserve Bank of India (RBI) raised interest rates steeper than expected at its quarterly policy review signalling its urgency to stamp on inflation that is on track to hit double digits for the sixth month running in July.
“Investors are taking solace in the fact that it (central bank review) was better than the worst fears,” said Sanjeev Patkar, director of research at Almondz Global.
“The central bank is proactive and is trying to avoid slippages in its core objectives of inflation control and growth. We cannot forget that we recovered from a world crisis, due to a prudent authority.”
The RBI lifted the repo rate, at which it lends to banks, by 25 basis points as expected, but it bumped up the reverse repo rate, used to absorb excess cash from the system, by 50 basis points. It left the cash reserve ratio unchanged.
The move narrowed the corridor of liquidity adjustment facility and would reduce some uncertainty in the overnight loans market and fluctuation in short-term rates, said Anubhuti Sahay, economist at Standard Chartered Bank.
The 30-share BSE index firmed 0.32% or 57.56 points to 18,077.61, with two-thirds of its components closing in the green. The 50-share NSE index rose 0.2% to 5,430.60 points.
Monsoon rainfall in the key crop-planting month of July has been normal, recovering sharply after a 16% deficit in June, sources in the weather office told Reuters.
The benchmark stock index is up 3.5%, as foreign funds poured in $9 billion in Indian stocks so far this year. A part of this investment was directed towards primary market offerings.
MSCI’s measure of world markets edged 0.4% higher at 2:18pm, while more volatile emerging markets index firmed 0.7%.
Leading lender State Bank of India closed 1.1% higher while private lenders ICICI Bank and HDFC Bank rose 0.9% and 0.7% respectively.
Auto stocks bounced back after tumbling in the previous session. The BSE Auto index climbed 2.4% after declining 3.3% in the previous session.
Motorcycle maker Hero Honda gained nearly 3% while leading car maker Maruti Suzuki, which had posted its worst single-day%age-point fall ever on Monday, rebounded 1.4%. Tata Motors raced 3.2%.
Energy major Reliance Industries, which has the highest weight on the main index, edged up 0.1% ahead of its quarterly earnings announcement after market hours.
According to a Reuters poll, Reliance may report a net profit of Rs4830 crore.
Top power producer NTPC underperformed and closed unchanged after it reported a 16% drop in its June quarter net profit, after market hours on Monday.
Top engineering and construction firm Larsen & Toubro dropped 2.9%, as it reported a 58-percent drop in its quarterly net profit.
Hindustan Unilever HUL.BO, the unit of Anglo-Dutch group Unilever Plc closed 0.5% lower.
The top household products and consumer goods maker saw its quarterly net profit dip 1.8% on slow volume growth and higher advertising and promotional expenses aimed at battling competition and protecting its market share.
In the broader market, 1,539 declining shares outpaced 1,383 advancing ones in a low volume of 298 million shares.
Mahindra Holidays dropped 5.9% to Rs512.90, after the hospitality services provider said its June- quarter net profit declined 61%.
Tyremaker Ceat fell 2.3% to Rs132, as it said its April-June net profit slumped 77%.
Organic chemicals maker Jubilant Organosys shed 2.5% to 348.40 rupees, as it said its June quarter net profit plunged 45%.
Consumer products maker Jyothy Laboratories firmed nearly 3% to 282.85 rupees as its April-June net profit rose 17%.