Benchmark indices the Sensex and the Nifty were trading a tad lower on April 5 morning after the Reserve Bank of India, as expected, kept the repo rate unchanged at 6.5 percent for the seventh straight time. Realty were the top performers among rate-sensitive stocks, while autos slipped.
The Sensex was down 65.01 points or 0.09 percent at 74,162.62, and the Nifty was down 20.70 points or 0.09 percent at 22,494.00. The market breadth was in favour of gainers as about 1,851 shares advanced, 1,292 declined and 95 were unchanged.
Meanwhile, India's 10-year bond yield was stable as it rose by three basis points to 7.12 percent after RBI retained 'withdrawal of accomodation' stance.
Announcing the policy decision, RBI governor Shakikanta Das said that last-mile of disinflation was turning out to be a major challenge globally. "Services inflation remains sticky in advanced economies. However, the outlook for rural and agricultural activity continues to remain bright," Das said. The RBI projected consumer price index (CPI) inflation at 4.5 percent for FY25, assuming normal monsoon.
Surplus liquidity talks to spark rate-sensitive stocks, say market experts
Apart from that, the RBI updated improvement in liquidity situation in March. "The liquidity conditions have improved during February and March in the wake of increased government spending, Reserve Bank’s market operations, and the return leg of US dollar and Indian Rupees sale by swap auction," he explained.
Market experts believe that this RBI's liquidity management efforts may lead to a positive reaction in the stock market, particularly banking stocks.
"Any indication of accommodative monetary policy measures could further bolster investor confidence, potentially driving upward momentum in the stock market. Banking sectors 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," said Sonam Srivastava, Founder and Fund Manager at Wright Research.
For growth, the Governor mentioned resilient GDP growth across the globe. Das kept real GDP growth for FY25 at 7 percent, Q1FY25 to be 7.1 percent, Q2 to be 6.9 percent and both Q3 and Q4 to be at 7 percent.
As RBI maintains FY25 growth forecast, analysts see no hurry to cut rates
Equity strategists believe that since India is standing tall on the growth front, the RBI may not be in a hurry to cut interest rates before the US Federal Reserve does.
"The RBI has enough space for holding repo rate steady, with its FY25 GDP growth being quite strong at 7 percent in order to target the 4 percent inflation mark," said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities.
Rakshit projects a shallow rate cut cycle from Q3FY25 onwards with the stance changing to neutral in end-Q2FY25 or along with the rate action.
Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers, too, believes that the RBI will wait-and-watch before initiating a rate cut cycle.
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