The stock markets had an extremely good day with Reserve Bank of India, or RBI leaving cash reserve ratio, or CRR, the repo and reverse repo rates remaining unchanged in its credit policy.

The markets opened flat. They were looking for some direction from the credit policy, and ended with hefty gains and large volumes

With rates unchanged, interest rate sensitive stocks were among the top gainers. Bank stocks led the up trend followed by auto, metal, telecom, media and oil and gas. However, languishing at lower levels were technology stocks due to strengthening rupee. The midcap and smallcap index ended higher but did not outperform the frontliners.

The Sensex stayed above the 14,100 levels and Nifty above the 4,100 mark. SBI, Tata Steel, Bharti Airtel, Zee Entertainment and PNB were among the top frontline gainers. Sensex closed up 208.39 points, or 1.50%, at 14136.72, and the Nifty up 56.70 points, or 1.39%, at 4,141.8.

The BSE Midcap Index ended at 5,745.34 up 42.9 points, or 0.75%, and BSE Smallcap Index ended at 7,003.63 up 32.7 points, or 0.47%. The BSE Bankex was up 4.06% at 7,161.4. Canara Bank, Oriental Bank of Commerce , Bank of India, PNB, SBI, Bank of Baroda, Indian Overseas Bank moved upwards.

Investment advisor PN Vijay said, "There is already celebration from the numbers. RBI governor Y V Reddy had a very difficult job on his hands -- how to marry strong economic growth, over the last three years, and high inflation. There were those who felt he had gone overboard with the monetary policy, especially in the last three months, and he seem to have withdrawn back by keeping all rates unchanged and has given a medium-term rosy picture of inflation too. This has sent some very positive signals to the market. I have always maintained that inflation in India is mostly driven by supply and seasonality’s. Hopefully, we will have a seasonal fall in inflation, which should sustain this rally."

He feels that inflation woes have kept the market down. "The whole credit policy overhang was keeping the market down for the last few days. We had a lot of foreign economists giving us stern warnings about inflation but the fact that monetarist, like Dr. Reddy, don’t really believe it’s such a bugbear, should send a lot of positivism to the market. Otherwise, there is nothing seriously wrong with the market. I think it will go up in the next few days,” he added.

K Ramachandran, Head-Advisory Desk at BNP Paribas, said, “The policy didn’t have any devil in it and the markets have taken it positively. We foresee a solid appreciation in the market. As long as the market doesn’t show resilience and its ability to overcome short-term bad news, whether it is tightening of liquidity or hike in interest rates, I don’t think we can talk confidently about this market.”

He feels the markets will consolidate. “The market has gone up on a knee-jerk reaction. It needs to show real strength of being able to take bad news in its stride that will show the intrinsic strength of the market. Right now the market is heaving a sigh of relief. We need to see these markets consolidating and showing strength at these levels,” Ramachandran said.