Rate-sensitive sectors like realty, auto, NBFCs and banks cheered in trade on June 6, extending early gains after the Reserve Bank of India surprised investors with a larger-than-expected rate cut at its latest monetary policy meeting.
The RBI slashed repo rates by 50 basis points to 5.5%, more than the expected 25 basis point cut. In addition to that, the RBI also changed its policy stance from the previous ‘accommodative’ to now ‘neutral’ as it attempts to support growth in the face of global macroeconomic uncertainties.
"This marks a key turning point in India’s monetary approach, signalling a move from active easing to a more balanced, data-dependent stance amid rising global uncertainties and volatile capital flows," said Anil Rego Founder & Fund Manager at Right Horizons PMS.
The larger-than-expected cheered investors who are now betting on hopes of improved demand for housing and automobile on the back of these reduced rates, which will ease financing costs for buyers.
“This effectively lowers the cost of borrowing, making home loan EMIs easier on the pocket and thereby directly improving affordability for buyers. This can potentially boost demand in the Indian real estate sector, especially in affordable and mid-income segments,” said Anuj Puri, Chairman, ANAROCK Group.
Right along expectations, the Nifty Realty index surged 2% while Nifty Auto gained over 1%.
In addition, investors are also hoping that as lower borrowing costs boosts demand for housing and auto products, it could, in turn, improve profitability for lenders, both banks and non-banking financial companies.
While banks may still feel the pinch in net interest margin, VK Vijayakumar, Chief Investment Strategist, Geojit Investments, remains hopeful that credit growth after this rate cut will stimulate will compensate for the dip in margins.
This nervousness was also reflected in the initial knee-jerk reaction faced by Nifty Bank. Immediately after the policy outcome, the Nifty Bank index erased all losses to slip into the red, before it eventually moved upwards to hit a record high of 56,568.90, up over 1%.
