Benchmark indices Sensex and Nifty closed flat after trading in a tight range, thanks to a no-surprise Monetary Policy Committee (MPC) outcome. The Reserve Bank of India kept the repo rate unchanged at 6.5 percent and kept its monetary policy stance at the withdrawal of accommodation.
The central bank's focus on inflation convinced equity strategists that the RBI is no hurry to cut rates any time soon. They expect markets to remain rangebound in the near-term.
The Sensex was up 20.59 points or 0.03 percent at 74,248.22, and the Nifty was up 10.80 points or 0.05 percent at 22,525.50. The market breadth was in favour of gainers as around - 2,089 shares advanced, 1,303 shares declined, and 89 shares unchanged.
With India GDP growth strong, market experts believe that there is little incentive for the MPC to cut rates, especially when inflationary pressures have not completely eased off.
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"Since markets are concerned about a potential delay in the rate cut, it could cause it to remain range-bound in the near term," said Deepak Ramaraju, Senior Fund Manager, Shriram AMC.
On the other hand, Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank said that the RBI rate easing is unlikely before August. "While the US Fed is expected to start easing rates in June, such expectations altered several times in recent months and are far from certain," he added.
Sectors and stocks
Among rate-sensitive sectors, Nifty Realty index emerged to be the top winner, gaining over a percent driven by strong pre-sales momentum and government's capex thrust. Bank Nifty, too, joined in the bullish trend and gained 0.9 percent. However, Nifty Auto index sulked in trade.
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Analysts expect banking and NBFC stocks to benefit the most going ahead, given RBI's talks of improving liquidity situation in February and March.
"The banking sector could benefit from the RBI's focus on liquidity management, while sectors sensitive to interest rate changes such as real estate and infrastructure may also see some impact. Additionally, sectors reliant on domestic consumption such as FMCG and retail could benefit from stable financial conditions and improved consumer sentiment," said Sonam Srivastava, Founder and Fund Manager at Wright Research.
Broader markets outperformed benchmarks as Nifty midcap 100 and Nifty smallcap 100 surged up to 0.8 percent. The fear gauge India VIX was up a percent to trade above 11 level.
Apart from Nifty realty, private banking majors also performed well. Kotak Mahindra Bank, IDFC First Bank, HDFC Bank and IndusInd Bank gained up to 2 percent.
Profit-booking was seen in technology counters. The Nifty IT index slipped 0.5 percent, weighed down by losses in Tech Mahindra, Persistent Systems, Coforge, and TCS.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, advised quality buying in banking majors. "Data regarding deposit and loan growth from banking majors, particularly HDFC Bank are positive. Small finance banks data also indicate a healthy trend," he added.
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