Equity benchmarks surged sharply on Friday, ending a seven-day losing streak after the Reserve Bank of India hiked interest rates to a three-year high to fight elevated inflation and reconfirmed that the Indian economy was still resilient despite major shocks to the global economy.
The markets witnessed a strong rally after the monetary policy announcement by the RBI as there was broad-based buying support, with only two of the 30 stocks that are part of the benchmark Sensex ending in the red.
The BSE Sensex index rallied 1,016.96 points, or 1.8 per cent, to end at 57,426.92, and the broader NSE Nifty climbed 276.25 points, or 1.64 per cent, to 17,094.35, marking their best quarter this year - up more than 8 per cent.
Both the indexes posted their biggest jump in a month, breaking a seven-day losing streak.
Bharti Airtel, IndusInd Bank, Bajaj Finance, Titan, Kotak Mahindra Bank, HDFC Bank, and Tata Steel were some of the top gainers among the 30 share Sensex group.
Dr Reddy's, Asian Paints, ITC, and Hindustan Unilever, on the other hand, lagged behind.
"The fact that there were no negative surprises is what is positive for the markets. It is also positive that the inflation expectation has been maintained," Hemali Dhame, associate vice-president, research, Kotak Securities, told Reuters.
The rate sensitive Nifty bank index rose 3 per cent, while the Financials index gained 2.7 per cent and metals added 2.8 per cent.
"The banking sector is going to do well fundamentally on its own. Their credit growth is strong...If there is sufficient liquidity then the banks will not have to aggressively raise deposit rates, which means they can see a margin expansion in the near term," Ms Dhame added.
The RBI's Monetary Policy Committee (MPC) decided to raise the policy repo rate by 50 basis points, or 0.50 per cent, to 5.90 per cent, a three-year high.
"The 50 bps rate hike by the RBI in today's meeting was in line with expectations. The key highlights were the resilience shown by the Indian economy considering the turbulent global environment and concerns emanating from global growth slowdown and hawkish stances of various central banks," Santosh Meena, Head of Research at Swastika Investmart, told PTI.
The MPC also decided to remain focused on withdrawing accommodation to ensure that inflation remains within the target while supporting growth, said RBI Governor Shaktikanta Das.
The world is amid a third major shock from aggressive monetary tightening by central banks, said the Governor, referring to the pandemic and the Ukraine crisis as the other two significant headwinds.
"There is nervousness in the financial market, the global economy is in the eye of the new storm," but the "Indian economy continues to be resilient in the midst of global turmoil," added Mr Das.
The rupee too rose significantly on Friday, marking the second straight day of gains after hitting record lows repeatedly this week.
That rally in Indian stocks comes after following a week of market turbulence, during which recession concerns dragged down equities and the strength of the dollar shook currency markets, with Asian shares tumbling on Friday to mark their biggest monthly loss since the pandemic's inception in 2020.
But despite being on course for a third consecutive quarter of losses, European equities opened higher even as investors remained concerned about the impact of central banks raising interest rates to fight inflation on the global economy.
David Madden, Market Analyst at Equiti Capital, told Reuters that a pullback in government bond yields enabled stocks to edge up, but that was unlikely to be the start of a longer recovery.
"The big picture hasn't changed: yields are an upward trend, inflation is still really high, interest rates are set to continue on the path of higher rates," he added.
The MSCI world stock index, which measures shares of 47-countries, rose, with the STOXX 600 in Europe gaining over 1 per cent, even as it was set for set for a loss on a weekly, monthly and quarterly basis.
“Today, everything is just oversold so you are seeing a rebound,” Esty Dwek, Chief Investment Officer at Flowbank SA, told Bloomberg.