Indian shares rose for a third straight session on Tuesday, after the newly-appointed monetary policy committee delivered its first rate decision, a surprise 25-basis-points cut in the repo rate, with bank stocks leading the gains.
The Reserve Bank of India said all six members of the monetary policy committee voted in favour of a cut in the repo rate which, at 6.25 percent now, is at its lowest since November 2010.
Analysts had braced for a close vote. About 60 percent of analysts polled by Reuters had expected the central bank to keep the repo rate unchanged, while 40 percent had forecast a cut.
"Today's rate cut will boost sentiment and contribute towards reinvigorating growth impulses in the infrastructure, construction and manufacturing sectors," said Rana Kapoor, CEO at Yes Bank in Mumbai.
Following the rate cut, the broader NSE Nifty rose as much as 0.52 percent before ending 0.36 percent higher at 8,769.15. The benchmark BSE Sensex closed up 0.32 percent at 28,334.55.
Banking stocks gained, with the Nifty bank index, closing 0.43 percent higher after rising as much as 0.81 percent immediately after the rate decision.
The Nifty Midcap 100 Index and the Nifty Smallcap 100 Index extended gains for the third straight session, closing up 0.87 percent and 0.48 percent, respectively.
Meanwhile, the rupee strengthened to as much as 66.38 per dollar, its highest level since Sept. 7, versus Monday's close of 66.585.
The new 10-year benchmark bond yield dropped as much as 3 basis points on the day to 6.75 percent after the policy decision. It had closed at 6.77 percent on Monday.
"While today's rate cut would accentuate the bond rally, I don't see much impact on bank lending rates," said Rupa Rege Nitsure, chief group economist at L&T Finance Holdings.
(Reporting by Darshana Sankararaman; Editing by Sunil Nair)