Moneycontrol
Last Updated : Feb 08, 2019 01:28 PM IST | Source: Moneycontrol.com

Profit booking drags rate-sensitives stocks lower after RBI's 25 bps rate cut

The Bank Nifty was trading in the green with gains from IDFC First Bank, Yes Bank, RBL Bank, Punjab National Bank, State Bank of India and Kotak Mahindra Bank while automobile stocks including TVS Motor, Bajaj Auto, Motherson Sumi, Ashok Leyland, Tata Motors and Maruti Suzuki traded in the green.

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Shares of interest rate sensitive stocks showed showed mixed move after the monetary policy committee (MPC) cut the repo rate by 25 basis points to 6.25 percent in the sixth bi-monthly monetary policy. Consequently, the reverse repo stands at 6 percent.

RBI in a statement said that these decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth.

The Consumer Price Index (CPI) inflation has been revised downwards to 2.8 percent in Q4FY19, 3.2-3.4 percent in H1FY20 and 3.9 percent in Q3FY2020, with risks broadly balanced around the central trajectory

Sectors like banking, real estate and auto, among others, will be impacted the most from the rate cuts as the cost of the products will be directly influenced due to the interest rate.

The Bank Nifty was marginally trading in the green after the outcome with majority names in the index trading higher. The likes of IDFC First Bank, Yes Bank, RBL Bank, Punjab National Bank and Kotak Mahindra Bank rose 1-5 percent.

Clipboard03However, the Nifty PSU bank index slipped into the red with loses from Oriental Bank of Commerce, Union Bank of India, Bank off Baroda and IDBI Bank.

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Automobile stocks soared in trade, with Nifty Auto index gaining over 1 percent. TVS Motor, Bajaj Auto, Motherson Sumi, Ashok Leyland, Tata Motors, Maruti Suzuki, Mahindra & Mahindra, Hero Moto and Apollo Tyres rose up to 4 percent.

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Nifty Realty was trading marginally in the green with gains seen in Sunteck Realty, Oberoi Realty and Godrej Properties.

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This is the first policy of new RBI Governor Shaktikanta Das, who also heads the monetary policy committee.

“With an extremely benign inflation reading and limited risks to upside and with the rupee having stabilised, it was clear to us that the time is right to provide the much-needed support to economic growth. This could also be gauged from the RBI policy announcement, where members unanimously voted in favour of changing their policy stance to Neutral from that of calibrated tightening,"said Amar Ambani, President & Head of Research at YES Securities.

"To our mind, it was only a matter of whether rates were cut in today’s meeting or the during the next policy meet of RBI. In our recent strategy note post Union Budget, we opined that while the Central Bank will take cognizance of the budgeted pause in the fiscal deficit glide, it will not hold back from cutting the Repo rate."

"The RBI chose to cut Repo by 25 basis points in today’s policy itself, with four members (including the Governor) favouring a rate cut while two members opted for status quo on rates. We welcome this decision and believe that the present situation opens up doors for more rate cut action in the year 2019,” he added.

"Rate cut of 25 basis points is an act of fine balance between maintaining real income and boosting economic growth, benign inflation trajectory and low private capex were key enablers for rate cut, which is good for mid and small cap companies," said Dharmesh Kant, Head - Retail Research at IndiaNivesh.

"Double bonanza for NBFC’s low cost of funds and boost in consumption on account of low inflation / high disposal income. What interim Budget 2019 missed for corporates has been largely compensated by the Monetary policy change in stance to neutral will bring stability to financial environment," he added.

Experts advise investors to stay with sectors like banking, discretionary consumption, heavily indebted sectors like steel, power, real estate and infra which are likely to be key beneficiaries of a possible rate cut.
First Published on Feb 7, 2019 10:22 am
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