Indian shares recovered from near two-week lows on Wednesday to trade slightly higher as the central bank hiked its key policy rate as widely expected, with financials and realty stocks leading the gains.

The Reserve Bank of India raised the repo rate by 50 basis points after an unscheduled 40-bp hike in May, and dropped its "accommodative" stance, reinforcing expectations of more hikes and other forms of tightening in coming months to control broadening pricing pressures.

The RBI's decision to hike the repo rate, as well as increase the inflation estimate, was in line with market expectation, said Suvodeep Rakshit, a senior economist at Kotak Institutional Equities.

While inflation looks set to remain elevated, mainly driven by high global energy and food costs, economic growth prospects have started to look bleak. Gross domestic product growth slowed to its weakest in a year last quarter on a year ago, the third consecutive slowdown.

The NSE Nifty 50 index was up 0.21% at 16,451.20, as of 0532 GMT, while the S&P BSE Sensex was 0.22% higher at 55,227.31. Both indexes had fallen more than 0.70% after the central bank's decision.

The rate-sensitive Nifty bank, finance and public-sector bank indexes rose between 1% and 2%.

Lenders Bajaj Finance, Bajaj Finserv and State Bank of India were among the top boosts to the Nifty 50, rising 2% each.

The Nifty realty index jumped as much as 2.6% after a three-day slide, as the central bank allowed rural co-operative banks to lend towards residential housing projects.

The RBI's move will help improve much-needed liquidity in the sector, said Sharad Mittal, director and chief executive of Motilal Oswal Real Estate Funds.

"Now with mortgage loan rates set to go up, we may notice a slight demand blip in the short term but overall outlook on the sector remains strongly bullish in the long term," Mittal said. (Reporting by Rama Venkat in Bengaluru; Editing by Subhranshu Sahu)


Reuters