"Real estate, NBFC, Banking, and Auto sectors would be the key beneficiaries of this rate cut where a temporary uptick can be seen in many stocks but quality stocks will continue to outperform," said Amit Gupta, Co-Founder and CEO at TradingBells.
The RBI's Monetary Policy Committee meeting has been underway since June 4, and the decision has been made. For the third time in a row now, the RBI has cut rates by 25 basis points. This was widely expected, given the slowing economic growth along with rising global uncertainty. The MPC has also decided to change their stance from neutral to accommodative while stating that the RBI expects the government to remain broadly fiscal-prudent.
Amit Gupta, Co-Founder and CEO at TradingBells, says, "The RBI has announced a rate-cut of 25 basis points fuelled by a stable government, sharp decline in crude oil prices and a slowdown in the economy. The RBI changed its stance to accommodative, and a possibility of further rate-cuts this year remains open (we can expect a further rate cut of 50 to 75 basis points in 2019)."
"Real estate, NBFC, Banking, and Auto sectors would be the key beneficiaries of this rate cut where a temporary uptick can be seen in many stocks but quality stocks will continue to outperform," he added.
Shishir Baijal, Chairman & Managing Director – Knight Frank India, stated that the policy rate cut was likely to provide respite to the real estate sector.
"The first rate-cut in the newly-elected government’s regime is certainly a welcome step, especially for the real estate sector. The benefit of lower policy rate in terms of better credit cost as well as higher liquidity will hopefully be transmitted further by banks to NBFCs as well as home buyers," he said.
Baijal goes on to say, "The change in policy stance from neutral to accommodative is a welcome shift as it lays ground for further rate cuts. The cash-crunched NBFCs will definitely benefit from inflow of capital which will in turn benefit developers as well as home-buyers. NBFCs have been facing a liquidity crisis and this has negatively impacted their loans to real estate, including construction finance. Besides capital infusion into this important financier segment, this rate cut will also improve the home-buyers affordability and stimulate housing demand at this critical juncture.”
Rajnish Kumar, Chairman of SBI said, "The RBI policy decision to change the policy stance to accommodative will simultaneously help the financial system to navigate to a lower term structure of interest rates and also accommodate growth concerns. On the regulatory front, the decision to lower the Basel III Leverage Ratio will augment the lendable resources of the Banks. Also the move to scrap transaction charges for RTGS & NEFT will boost digital transactions. The decision to issue draft for on-tap licensing of small finance banks will add depth to this sector. Launching of the on-line trading platform for retail participants is a positive development for small and medium forex customers. The RBI intent to harmonize existing regulations for different money market products augurs well for market transparency."
Romesh Tiwari, Head of Research – CapitalAim says, "25 basis point cut is in line with our minimum expectation and was already discounted in the market. The downward revision of GDP growth reflects concern over slowdown and supports shifting of RBI stance to accommodating policy. We expect banking shares to remain strong in the midterm while NBFCs may further correct before consolidating."
"Largely market will not be driven by this news. Current valuations do not justify Nifty and Sensex and are due for a correction soon. Now all the eyes will be on the budget session which may bring some big measures for revitalizing the economy. Short term target for Nifty is 11,880 and breaking below that may take the Nifty 11,660 levels in the medium term," he said.
Naveen Kulkarni, Head of Research, Reliance Securities says, "While the rate cut of 25 basis points was in line with our expectation, concerns over growth and challenges regarding liquidity continue to linger. The market is not necessarily cheering the rate cut as it had already factored in and something more was expected."
"RBI reduced repo rate by 25 bps as expected. The change in stance to ‘accommodative’ was a bit of a surprise. Debt markets will take this as a significant positive move though most of the rate cut cycle is probably over. The tone of the RBI policy was dovish and highlights the concerns on growth. We maintain our call for another 25 bps rate cut in August factoring in the benign inflation trajectory and the growing concerns on growth. However, transmission of the rate cuts will be key and the RBI should aim to maintain the liquidity, at least, at neutral over the next few months," said Suvodeep Rakshit, Sr. Economist, Kotak Institutional Equities.
Arvind Chari, Head –Fixed Income & Alternatives , Quantum Advisors Pvt Ltd said, "The Repo Rate cut of 25 bps was as expected. That it was unanimous, in a 6-0 decision is noteworthy. What is of most significance through for the bond markets is the change in stance to accommodative. This is a clear indication that the RBI is deeply concerned about growth and is prepared to use interest rates and liquidity to boost demand."
He also says, "Bond yields may have further room to drop as the markets will except further rate cuts especially another 25 bps in August to take the Repo rate to 5.5%. 10 year bond government bond yield at around 6.9%, is still attractively valued as more rate cuts gets priced in. We expect another rate cut in August but will caution against too much exuberance."
Mandar Agashe, Founder and Vice President of Sarvatra Technologies said, "With the waiver of charges on payment modes like RTGS and NEFT, RBI is clearly nudging the banks towards increasing digital payments. This move will specially benefit the small traders who deal in small value transactions and operates on small margins and for whom every penny counts. So this is actually a great move for the masses and will go a long way in encouraging digitization of payments and enhancing financial inclusion. Moreover RTGS and NEFT are much cheaper modes than other payment mechanisms like Cheques in terms of the cost involved in managing end to end transactions until settlement. This move will therefore benefit banks and the entire ecosystem by encouraging more volumes."
"The interest rates are amongst the highest in the emerging economies. The reduction in repo rate by 25 bps will directly bring down the rate of EMI which means consumers can now avail home, auto and other loans at much cheaper rates. This will encourage lending and credit thereby boosting the overall economic growth. This is the third straight interest-rate cut which will largely ease liquidity and nurture the investment cycle. This will also revitalize consumption, enhance demand and exports besides resolving the ongoing liquidity issues in the financial sector." Raman Kumar, Chairman and Founder of CASHe.
He added, "Besides, the waiver on RTGS and NEFT charges will further promote digital transactions. We are looking forward to a strong growth momentum in the coming fiscal which will be backed by robust investments by the government."
Avnish Jain, Head Fixed Income at Canara Robeco Mutual Fund said, "Consistent with market expectations, the monetary policy committee (MPC) reduced repo rate by 25 bps and further changing stance to accommodative from neutral. The decision was unanimous with the Committee voting 6-0 in favour of rate cut as well as change in policy stance. Considering that growth remains subdued, with sharp slowdown in investment activity and moderation in consumption activity, and inflation within RBI mandate, the MPC concluded that there was scope for further policy accommodation to boost demand and kickstart the investment cycle."
He also said, "The market reacted positively to the MPC outcome with 10-year rallying to 6.87 percent (from previous close of 7.02 percent) as the change in stance to accommodative was a bit of surprise to markets. Further the MPC highlighted number of factors affecting growth and thought that inflation was well under control. The next big event for the market would be the Union Budget in July. Markets would also eagerly wait for the announcement of the liquidity framework by the RBI. Going forward we expect the 10Y to remain in a range of 6.75 percent to 7.00 percent with a downward bias."
Mr. Umesh Mehta, Head of Research at Samco Securities said, "This is the third consecutive time that RBI has cut rates by 25 bps which shows that they are indeed taking care of the slowing growth and as expected are being supportive by loosening their purse. Indian economy has been experiencing a slowdown with unemployment at 45-year highs, CPI inflation excluding food and fuel down to 4.5 percent in April from 5.1 percent in March and a revision by the RBI on the GDP for FY20 from 7.2 percent to 7 percent indicates just that. This is positive for the Street, however, as the rate cut was in line with expectations which had already been factored in, the indices did not cheer the rate cut and continued to trickle down. If the international trade tensions continue to escalate further, the Fed might cut rates which will further create room for RBI to reduce rates in future."
Ajay Bodke, CEO – PMS, Prabhudas Lilladher said, "The unanimous decision by the Monetary Policy Committee (MPC) of RBI to cut repo rate by 25 bps and change its stance on liquidity from neutral to accommodative while lowering both the GDP growth forecast for FY20 and inflation forecast for Q4 FY20 is an unambiguous admission that it has failed to anticipate the sharp deceleration in India's aggregate demand and remains firmly behind the curve in providing succor to the beleaguered economy."
"No specific measure has been announced that would provide immediate relief to the much-troubled NBFC sector. In the presser the Governor did reiterate multiple times that RBI will do whatever it takes to ensure financial stability of the system. Jittery markets are facing a crisis of confidence with respect to the precariously perched NBFC (including HFCs) & fixed-income mutual fund sectors. It looks highly unlikely that these broad, motherhood statements will assuage market concerns. Specific & targeted solutions to rescue these besieged sectors alone can stem the panic and stop a further contagion. Inadequately forceful response to the ILFS bankruptcy has already created fear psychosis among market participants which is getting compounded by an almost blaśe regulatort treatment towards other troubled groups like DHFL, Essel, ADAG etc," Bodke added.
Dinesh Rohira, CEO and Founder at 5nance.com said, "The Reserve Bank of India during its June bi-monthly MPC meet slashed the policy repo rate for a third consecutive period in unanimous decision by 25 bps which now stands at 5.75 percent, and further revised the stance towards accommodative from neutral stance for the first time since new Governor took charge. Although the majority of market participants voiced for beyond standard cut of 25 bps, the current rate cut came in line with market expectation which was primarily driven by slowdown in domestic economic growth coupled with distress in global market led by trade truce. The central bank also lowered the GDP growth rate for FY20 to 7 percent from 7.2 percent which indicates the likelihood of economy facing headwinds led by slowdown in consumption and private investment."
"The risks to inflation outlook was maintained broadly balanced which also augur scope for further rate-cut or pause in hike with MPC opting for accommodative stance to boost the consumption and investment growth in distress sectors. The committee also remained cognizant of guidelines for rate cut transmission by the banks which is likely to be faster than past practice. This current rate cut coupled with consistent liquidity infusion into the system on periodic basis is expected to stabilize distress NBFC/HFCs sectors which is challenged with liquidity crisis in recent period. The transmission of rate cut by Banks or HFCs is expected to boost activity in sectors like Housing and Automobile on account of cheaper cost of fund with lower EMI obligations for retail borrowers."
Kumaresh Ramakrishnan, Head - Fixed Income, DHFL Pramerica Mutual Fund said, "The Monetary Policy Committee unanimously voted today (6-0) for a rate cut of 25 bps and a change in stance from 'neutral' to 'accommodative'. The rate and stance easing were helped by RBI's assessment of downward revision in GDP to 7.0 for FY 20 (by 20 bps over the earlier forecast) and a lowering of the upper end of the inflation band by 10 bps to 3.7% by March 2020. Given that the one year forward CPI forecast is well under the medium term CPI target of 4%, the policy tone was distinctly accommodative and pro-growth."
Ramakrishnan also said, "Recent rounds of liquidity infusion both through OMOs and INR - USD swaps have started reflecting in easing liquidity conditions causing the average daily surplus in June to turn positive to the tune of INR 660 bio. The MPCs assessment of a distinct weakening in growth conditions, slow-down in investment activity, fall in consumption and expected inflation trajectory remaining below the target are all positives for yields in the near to medium term."
"The yield curve which has already witnessed a fair amount of steepening is likely to continue some more in our view, aided by the extremely positive comments on liquidity. Given this backdrop, the short (1-3 years) and medium term funds (2-5 years) continue to look very attractive. Some allocation to Dynamic bond funds could also be considered to take advantage of fall in long end (7-10 years) yields as well," he added.
Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers said, "RBI carried out the third successive rate cut. Low inflation and subdued growth are the drivers of the move. Yet, the real concern is lack of transmission of rate cuts into effective lending rate. Liquidity conditions also remain tight for large part of the corporate sector. Effective transmission and adequate liquidity remain key challenges."
Umesh Revankar, MD and CEO - Shriram Transport Finance Ltd said, “25 bps cut by the RBI is the third consecutive cut in 2019. The transmission of the previous rate cuts had been very discouraging at only 5-10 bps. As the monsoon predication is very positive, we expected RBI to take a bolder step and do 50 bps rates cut, that would have given clear signal to India Inc to push for growth and take investment decisions thereby maintaining the capex cycle."
"Because of higher interest rates the consumer spending like auto sales, real estate etc. has been very weak. We urge RBI to open up funding to retail NBFCs through banks that will stimulate the consumer spending," Revankar added.The GDP target has been lowered for financial year 2019-20 from 7.2 percent to 7 percent. The RBI also noted in its policy statement that consumer inflation for the first half has been pegged at 3-3.1 percent.The Great Diwali Discount!
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