The Reserve Bank of India’s repo rate cut provided the much-needed relief rally to the investors who have seen a massive erosion in their wealth in the last few days. Though the volatility was high and investors were cautious, the BSE Sensex rose 248 points or 2.48 per cent and closed above the 10,000 level at 10,223.09. Firm Asian and European markets added support to the domestic bourses. Indicating the easing of the liquidity situation, inter-bank call rates ended sharply lower at 5.50 per cent in the call money market due to lack of demand from borrowing banks. “The overnight call money rate finished lower at 5.50 per cent as against 7.00 per cent previously,” said a banker. Call rates had touched 23 per cent a week ago due to tight liquidity position.Through its recent measures, the apex bank has infused nearly Rs 1,20,000 crore into the system while another Rs 25,000 crore will be delivered to the banks to compensate the farm loan waiver.As the repo rate cut is expected to result in interest rate rates, lower borrowing costs will benefit corporates. “This is the first cut in the repo rate since March 2004 and marks a big turnaround in the monetary policy towards easing. The liquidity situation had eased marginally over the last few days with the overnight call rate coming down from a peak of over 20 per cent to 6.75 per cent now. Transactions in the repo window had also begun to lessen to an average of $7.8 billion in the last five days from a peak of over $16 billion,” said Tushar Poddar, vice-president of Goldman Sachs. Banking stocks and IT stocks led the rally on Dalal Street with Satyam Computer Services and Wipro rising more than 8.5 per cent each while Tata Consultancy Services moving up by over 9 per cent. Most lenders rose on hopes lower rates will boost lending. HDFC Bank, India’s second largest private sector bank by net profit, which last week reported strong Q2 results, rose 5.94 per cent to Rs 1,084.85. ICICI Bank and State Bank of India rose between 1.43 per cent to 4.95 per cent. India’s largest home loan lender by operating revenue HDFC jumped 5.73 per cent. Canara Bank spurted 5.05 per cent.Meanwhile, Asian and European stocks were firm as investors took comfort in global efforts to prop up the banking system, allowing for some bargain hunting. Japan’s benchmark Nikkei 225 and South Korea’s Kospi jumped as much as four per cent, whereas the London Stock Exchange’s FTSE 100 rose over two per cent.Wall Street bounded higher, extending its streak of volatility as investors took signs of easing in the credit markets as evidence that government steps to revive the battered financial system are taking hold. The Dow Jones industrials rose more than 200 points, and all the major indexes were up more than 1 per cent.
