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Capital goods, banking stocks shine as RBI cuts CRR

Analysts said this is a good move by the central bank as after this initiative, banks may reduce interest rates to attract borrowers.

twitter-logoPTI | January 24, 2012 | Updated 20:00 IST

Interest rate-sensitive capital goods and banking stocks were the biggest gainers in the rally on the bourses on Tuesday after the Reserve Bank India (RBI) cut the cash reserve ratio (CRR) requirement by half a percentage point.

Cheering the move, the BSE-Capital Goods Index settled 3.30 per cent higher at 10,208.70 points, the maximum gain registered by any of the exchange's 13 sectoral indices.

While the rally in banking stocks was broad-based, in the capital goods space, a sharp jump in L&T's counter pushed up the index. Shares of L&T climbed 5.64 per cent to close at Rs 1,349.70 on the BSE. ABB, too, gained 2.43 per cent, while Punj Lloyd rose by 1.90 per cent.

Analysts said this is a good move by the central bank as after this initiative, banks may reduce interest rates to attract borrowers.

"The CRR cut is aimed at boosting growth through liquidity injection. RBI has adopted a two-prong strategy to tackle the inflation-growth trade-off on the one hand and the management of fiscal balances on the other," CARE Ratings MD & CEO D R Dogra said.

The Bankex also rallied and Canara Bank was the top gainer with a 9.60 per cent jump, followed by Bank of India, which surged by 6.75 per cent.

Sensex blue-chip SBI rose by 5.19 per cent, ICICI Bank was up 3.30 per cent and HDFC Bank climbed 0.95 per cent.

Led by gains in these stocks, the BSE Bankex index closed 3.21 per cent higher and was the second-best performer among the sectoral indices.

"We are positively surprised by the RBI decision to cut the CRR by 50 basis points with immediate effect. The markets have responded favourably to the cuts and would be poised to cross the near-term major technical levels and help sustain the recent run-up in the equity markets," MAPE Securities Senior Director Research Kislay Kanth said.

Auto and realty stocks, too, were on buyers' radar amid a strong market in which the BSE benchmark Sensex rallied 244.04 by points to settle at 16,995.77.

From the auto pack, Mahindra & Mahindra was up 3.56 per cent, Ashok Leyland climbed 3.19 per cent, Tata Motors rose by 1.44 per cent and Hero MotoCorp gained 1.05 per cent.

Among realty players, Sobha Developers, HDIL and Unitech rose by 5.91 per cent, 3.71 per cent and 2.93 per cent, respectively.

The RBI on Tuesday cut the CRR, the amount of deposits the banks are required to park with the RBI in cash, to 5.5 per cent from 6 per cent with effect from January 28, releasing Rs 32,000 crore into the system to ease liquidity problems.

The short-term lending rate (repo) has been kept unchanged at 8.5 per cent.

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