The S&P BSE Sensex on Tuesday settled the day 232 points higher, while the broader Nifty50 ended above its key support level of 8,250 after Reserve Bank of India (RBI) kept the policy rates unchanged in its bi-monthly monetary policy review.
The 30-share index ended the day at 27,009, up 232.22 points, while broad-based 50-share index quoted 8,266, up 65.40 points at close.
Analysts said the RBI would likely be open to at least one more 25 basis point rate cut this year after easing the repo rate by 150 bps since January 2015. "Going by the track record of the RBI, they would perhaps wait for the clarity on monsoons," said Ravi Gopalakrishnan, head of equities at Canara Robeco Mutual Fund.
"Post-monsoon, we expect 25 basis points cut and by the end of the year another 25 basis points."
Apart from needing a good monsoon, Rajan's statement said inflation risks could also be offset by astute management of stocks by the government, and by companies increasing supply capacity.
Consumer price inflation rose at a faster-than-expected pace, to 5.39 per cent in April, from 4.83 per cent in March.
Banking stocks hogged the limelight with S&P BSE Sensex being the top sectoral gainer (1.63 per cent). Federal Bank stock (5.49 per cent) contributed the most to the index followed by SBI (5.40 per cent).
Dhanlaxmi Bank rose as much as 12.4 per cent, its highest since January 11, after The Economic Times reported the lender may become a takeover target, citing two unidentified bankers familiar with the developments.
A lowdown on markets today
Sensex at 27,063, up 286.27 points
Nifty at 8,289, up 88.65 points
Sensex at 26,898, up 121.27 points
Nifty at 8,241, up 40.80 points
Sensex at 26,873, up 96.43 points
Nifty at 8,231, up 30.50 points
(With inputs from Reuters)