RBI's Rate Cut Sends Market Soaring: Sensex Climbs 700 pts, Nifty Flirts with 25K

RBI MPC Rate Cut: The market cheered the central bank governor’s 50 bps rate cut move on Friday, with benchmark indices erasing all early morning losses. By 11:40 AM, the 30-stock Sensex had climbed nearly 700 points and was trading at 82,140.85 level. Whereas, the NSE Nifty50 followed suit, surging 245 points to hover just below the psychological 25,000 level mark.

While D-Street players had already anticipated a rate cut in the June MPC meeting, the reduction was larger than expected. RBI Governor Sanjay Malhotra announced a 50 bps cut and shifted the policy stance from ‘accommodative’ to ‘neutral'.

However, the RBI governor acknowledged that the geopolitical scenario remains uncertain and that "it has become even more important to focus on domestic growth amidst sustained price stability."

Bajaj Finance, Axis Bank, Maruti Suzuki, Bajaj Finserv, Eternal (Zomato) and HDFC Bank were among the top-performing sectors from the Sensex pack. Almost all stocks from the 30-stock index were trading in green, except Nestle India and Sun Pharma.

Rate-sensitive sectors climbed with Nifty Bank touching an all-time high. The banking index was trading around 56,607.15 level, up by more than 800 points or 1.52%.

Nifty Realty also climbed by more than 4.40%.

"The MPC has clearly surprised markets with a big bang set of measures with a 100bps CRR cut, and 50 bps repo cut. These clearly comes from the perspective of frontloading actions to enable support to growth considering the lag effects of transmission. At the same time, the shift of stance to neutral has meant that the policy rates may possibly level off at 5.50% in the current cycle. However, this would remain a moving target with incremental data points likely to shape the outcome," said Rajeev Radhakrishnan, CIO- fixed income, SBI Mutual Fund.

However, some D-Street analysts warn of pain ahead for banking stocks.

On Friday, BSE Sensex concluded the trading session at 82,188.99 level, up by 746 points. NSE Nifty surpassed the psychological 25k level mark.

Banking Stocks to Feel the Heat?

Even as banking stocks rallied on Friday, analysts are expecting pain ahead for the sector. "The higher-than-expected 50bp rate cut decision by the MPC, though positive for growth is slightly negative from the market perspective for the near-term," said VK Vijayakumar, chief investment strategist, Geojit Investments Ltd.

As per analysts, the 50bps rate cut is expected to impact bank margins, putting pressure on banking stocks in the near term. However, the anticipated boost to credit growth could help offset the decline in margins over time.

"This big rate cut is, as the RBI Governor remarked, front-loading of the rate cut. The change in monetary stance from accommodative to neutral also indicates that more rate cuts are unlikely unless the situation warrants," Vijayakumar said.