Indian shares surge on RBI rate hike to close best quarter in a year

A general view of the Bombay Stock Exchange (BSE) in Mumbai, India, January 21, 2021. REUTERS/Francis Mascarenhas/File Photo

BENGALURU, Sept 30 (Reuters) - Indian shares rose on Friday to record their best quarter in a year, boosted by banks and metal stocks, after the country's central bank hiked its key policy rate for the fourth straight time as expected to bring down persistently high inflation.

The NSE Nifty 50 index (.NSEI) ended up 1.6% at 17,094.35, and the S&P BSE Sensex (.BSESN) gained 1.8% to 57,426.92. Both the indexes posted their biggest percentage jump in a month, breaking a seven-day losing streak.

The Nifty and the Sensex ended up more than 8% this quarter.

The Reserve Bank of India (RBI) has now raised interest rates by a total 190 basis points since its first unscheduled mid-meeting hike in May but inflation continues to remain stubbornly high - a phenomenon that is affecting much of the global economy. read more

"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," said Hemali Dhame, associate vice-president, research, Kotak Securities Ltd.

The rate sensitive Nifty bank index (.NSEBANK) rose 2.6%, while the financials (.NIFTYFIN) gained 2.2% and metals (.NIFTYMET) added 2.2%.

"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," Dhame said.

Hindalco Industries (HALC.NS) was the top gainer on Nifty 50 index, rising 5.2%.

The RBI, which has been spending massive forex reserves to arrest the rupee's fall against the strong U.S. dollar, said the context of adequacy of foreign exchange reserves is always kept in mind while intervening.

The RBI signalled that foreign exchange interventions are likely to continue to defend any extreme volatility in the rupee, said Sakshi Gupta, principal economist at HDFC Bank.

Reporting by Rama Venkat and Nallur Sethuraman in Bengaluru; Editing by Dhanya Ann Thoppil, Savio D'Souza and Rashmi Aich

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