The Nifty 50 Index surged on Friday after the Reserve Bank of India (RBI) delivered a bigger interest rate cut than expected and tweaked a cash requirement for banks in a bid to stimulate the economy. The blue-chip index, which tracks the biggest Indian companies, rose to ₹24,940, up by almost 15% from the lowest point this year.
RBI interest rate decision
The main catalyst for the Nifty 50 Index was the Reserve Bank of India, which delivered a more dovish rate decision than expected. In a statement, the bank decided to slash interest rates by 0.50%, higher than the expected 25 basis points.
It has now slashed rates to 5.5%, in a move that many analysts did not expect. On top of this, the bank moved its monetary policy stance from neutral to accommodative. This means that the next action will depend on key data on inflation, jobs market, and the GDP.
The RBI also slashed the cash reserve ratio by 100 basis points to 3%, a move that is expected to unlock almost $30 billion into the financial system. It hopes that these moves will stimulate the economy at a time when geopolitical risks are rising.
Indian stocks surged after the RBI decision, while government bond yields plunged. The yield of the 10-year fell to 6.22% from the year-to-date high of 6.868%, while the five-year fell to 5.95% from the year-to-date high of 6.85%.
Stocks often do well in a low-interest rate environment because investors often rotate from the bond market. Analysts believe that the bank, under Sanjay Malhotra, will deliver at least two cuts later this year.
Indian stocks performance
Most Indian stocks surged after the latest RBI interest rate decision. Bajaj Finance was the best-performing stock as it jumped by over 4%. Other companies in the financial services industry also soared, even though the rate cut will eat into their net interest income.
Shriram Finance stock rose by 3.7%, while Axis Bank, Bajaj Finserv, HDFC Bank, and Kotak Mahindra Bank rose by over 1.8% on Friday. The other top companies in the index were JSW Steel, Maruti Suzuki, Hero Motorcorp, Dr. Reddy’s, Adani Enterprises, and Jio Financial Services.
Only a handful of Nifty 50 Index companies dropped on Friday. Tata Steel stock dropped by 1.21%, while Sun Pharmaceutical, Bharat Electronics, and Nestle India retreated by over 0.35%.
Nifty 50 Index analysis
The daily chart shows that the Nifty 50 Index bottomed at ₹21,745 in April and then bounced back to almost ₹25,000 today. It recently formed a golden cross pattern as the 50-day and 200-day moving averages crossed each other.
The index has formed a bullish pennant pattern, comprising a vertical line and a symmetrical triangle pattern. This pattern normally results into a strong bullish breakout over time.
Therefore, odds are that it will have a bullish breakout to ₹26,280, the highest swing in September last year. A drop below the 50-day moving average at ₹24,250 will invalidate the bullish view.
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