A day after the RBI raised its repo rate for the first time in four years, the market rose in early trade amid higher Asian indices. At 9:42 am, the Sensex was trading 261 points or 0.74% higher at 35,440. The Nifty was up 75 points or 0.70% at 10,758 level. ICICI Bank (1.73%), Infosys (1.53%) and ONGC (1.32%) were the top Sensex gainers.
Bharti Airtel (1.13%) and Coal India (0.72%) were the top Sensex losers.
Banking stocks took the market higher with the BSE bankex rising 225 points or 0.77% to 29,685 in early trade. The index was the top gainer among 19 sectoral indices.
Bank Nifty too rose 0.83% or 218 points to 26,586 level.
Capital goods (1.06%) and metal index (1.42%) were also among the top gainers on the BSE.
"The rate hike is a negative but markets are recovering due to short-covering, since people sold off their positions at higher levels prior to the RBI meet and are now covering their positions at lower prices," said Sumit Pokharna, vice-president, Kotak Securities.
"Investors were anticipating a rate hike due to depreciation of the rupee, major selling in the debt markets and rising inflation on concerns over crude prices," he added.
Market breadth was positive with 1434 stocks trading higher against 372 falling on the BSE.
On Wednesday, the Sensex 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 Nifty finished the session 91.50 points, or 0.86 per cent higher at 10,684.65.
The RBI on Wednesday raised its key policy rate for the first time in over four years to rein in inflation, a move which will translate into higher EMIs for home and car loans and make it costlier for business enterprises to borrow for increased investment.
With all its members voting for the increasing, the 6-member Monetary Policy Committee (MPC) surprised markets by raising the repo rate by 0.25 per cent to 6.25 per cent but kept its policy stance as neutral.