India’s benchmark indices jumped to their highest close in more than seven months yesterday, in line with gains in world equities, after Federal Reserve chair Janet Yellen reiterated her faith in US growth while indicating that interest rates won’t be prematurely raised.
Also yesterday, the Reserve Bank of India (RBI) left key interest rates unchanged at its bi-monthly monetary policy review, in line with market expectations, and said its monetary policy will remain accommodative.
The move came a day after Yellen quelled speculation that US interest rates will be raised in July. On Monday night, Yellen reiterated her belief that the US economy still has forward momentum and that consumers could provide a significant step up in spending this quarter to propel overall growth.
Yellen was silent on the timing of the next rate increase, playing down a June move and raising doubts about July.
BSE’s market capitalisation crossed the Rs100tn yesterday for the first time since January 1.
BSE’s 30-share Sensex closed 0.87%, or 232.22 points, higher at 27,009.67 points, its highest close since October 28, 2015, while National Stock Exchange’s 50-share Nifty climbed 0.80%, or 65.40 points, to close at 8,266.45 points, its highest closing level since October 23, 2015.
With the event risk of the RBI policy out of the way, the markets, which had opened higher gained further traction after the policy announcement, dealers said.
“There were no unexpected negative surprises in the policy, and with world markets trading higher and flows continuing, our market moved upwards post the policy announcement too,” said Rikesh Parikh, vice-president of equities at Motilal Oswal Financial Services.
A few dealers also indicated that there was possible large buying, specially in frontline stocks, post the policy announcement. 
Among sectoral indices, rate sensitives such as BSE Realty Index and BSE Bankex were the top gainers. They rose 1.70% and 1.63%, respectively yesterday. “The RBI is in a wait-and-watch mode wanting further clarity on monsoons, global crude oil prices, macroeconomic and financial developments,” Crisil Research said in a note adding that it expects another 25 basis point (bps) cut in interest rates this fiscal year.
One basis point is one-hundredth of a percentage point.
“RBI’s policy stance remains accommodative, but before wielding the knife on interest rates, it will monitor the growth recovery, US fed action, monsoons, trend in food inflation and watch how the things unfold in the money market,” Crisil analysts said.
In Tuesday’s trade, top lender State Bank of India (SBI) advanced 5.40% and was the top gainer among Sensex stocks. Rival ICICI Bank followed with a 4.31% gain.
Meanwhile the rupee closed at over three-week high against the US dollar yesterday, after the Reserve Bank of India (RBI) assured that it would provide dollar and rupee liquidity, if needed, to prevent any disruption in the markets on the redemption of the foreign currency non-resident (FCNR) deposits. This was the fourth consecutive session when the rupee closed higher against the US currency.
The currency closed at 66.78—a level last seen on 13 May, up 0.30% from its previous close of 66.98. The rupee opened at 66.91 per US dollar and touched a high of 66.72, a level last seen on May 17.
In September 2013 when the rupee was under pressure, banks had raised $25bn through FCNR deposits and another $9bn through foreign currency borrowings and swapped the same with RBI. It is this $25bn chunk, most of which was linked to borrowed funds, that will be due between September and November.
India’s 10-year bond yield closed at 7.483%, as compared with its Monday’s close of 7.473%.
The government will release the April factory output data on June 10. According to a Bloomberg analyst poll, the factory output will shrink 0.6% in April, against a 0.1% rise in March.
So far this year, the rupee has weakened 0.93%, while foreign institutional investors (FIIs) have bought $2.56bn from the local equity market and sold $1.25bn in the debt market.