The Sensex surged almost 276 points to end above the key 35,000-mark even as the RBI hiked the policy rate by 0.25 per cent on inflation concerns. However, the RBI retained the GDP growth forecast for 2018-19 at 7.4 per cent on hopes of further boost to investments and higher consumption. The central bank hiked the benchmark lending rate for the first time in four-and-half-years on inflation concerns arising from a surge in international oil prices. The repo rate now stands at 6.25 per cent.
Anita Gandhi, Whole Time Director at Arihant Capital markets said, "The six-member MPC committee of RBI raised interest rates by 0.25 bps for the first time in 4.5 years in BJP-led NDA govt, keeping CRR and SLR status quo. Recent hike in crude prices & better GDP for last quarter of FY 18 suggest inflation trajectory may be on the higher side. Though, this may put some pressure on borrowers, it is positive news for the savers in the economy".
The Sensex, which opened at 34,932, fell after RBI's policy announcement but soon recovered to touch the day's high of 35,230.
It finally ended at 35,178, up 275.67 points, or 0.79 per cent.
The gauge had lost 419 points in the previous three sessions.
Suvodeep Rakshit, vice-president and senior economist at Kotak Institutional Equities said, "RBI MPC hiked repo rate by 25 bps to 6.25% while keeping the stance unchanged at "neutral". We remain confident that this will be a shallow rate hike cycle if the present conditions do not deteriorate significantly. We expect the RBI to hike by another 25 bps in the August policy but the call will hinge on how crude and INR movements pan out over the next few months, as well as, the extent of MSP hikes. We need to carefully look at the RBI minutes and observe the extent of upward pressure on food prices in the near term, risks of fiscal slippages, domestic growth recovery, and evolving global macro conditions (trade wars, DM monetary policy cycle, and commodity prices) to have greater clarity on the extent of RBI's rate hike cycle."
On similar lines, the Nifty, after shuttling between 10,698 and 10,587 finished the session 91.50 points, or 0.86 per cent higher at 10,684.65.
Bharti Airtel (4.55%), Tata Motors (3.56%) and Sun Pharma (3.21%) were the top Sensex gainers.
On the BSE, top gainers were Avanti Feeds (19.86%) , Reliance Communications (10.34%) and Allahabad Bank (8.82%).
Banking stocks rose after the RBI announced the rate hike. Bank Nifty which stood at 26,317 at 2:30 PM when the rate hike was announced rose 50 points to close at 26,367 level. BSE bankex which stood at 29,402 at the time of policy announcement rose 58 points to close at 29,460 level.
Meanwhile, domestic institutional investors (DIIs) bought shares worth a net Rs 474.33 crore, while foreign portfolio investors (FPIs) sold shares worth Rs 157.51 crore yesterday, as per provisional data.
Global stocks markets followed Wall Street higher Wednesday ahead of a meeting of major industrialized economies overshadowed by tension over US steel tariffs.
In early trading, London's FTSE 100 rose 0.2 percent to 7,706.16 points while France's CAC 40 edged up 5 points to 5,465.64. Germany's DAX lost 3.6 points to 12,781.79. On Tuesday, the DAX gained 0.1 percent while the CAC 40 dipped 0.2 percent and the FTSE 100 dropped 0.7 percent. On Wall Street, the future for the Dow Jones industrial average rose 0.3 percent while that for the Standard & Poor's 500 index gained 0.1 percent.
Tokyo's Nikkei 225 rose 0.4 percent to 22,625.73 and Sydney's S&P-ASX 200 gained 0.5 percent to 6,025.10. Hong Kong's Hang Seng advanced 0.4 percent to 31,222.77 while the Shanghai Composite Index added 1 point to 3,115.18. India's Sensex advanced 0.6 percent to 35,113.28 and benchmarks in Taiwan, New Zealand, Bangkok and Manila also rose. South Korean markets were closed for a holiday.