Shares of rate-sensitive companies surged in the wake of the Reserve Bank of India’s (RBI) decision to keep the repo rate steady at 6.5 percent for the fourth consecutive time. The RBI’s monetary policy committee (MPC) also reaffirmed its commitment to managing inflation and supporting economic growth. This decision aligns with the medium-term CPI inflation target of 4 percent with a +/- 2 percent tolerance band.
Market Reaction and Performance
In response to the RBI’s announcement, rate-sensitive sectors saw positive gains. The Nifty Realty and Nifty Auto indices rose by 0.89 percent and 0.54 percent, respectively. Meanwhile, the Nifty PSU Bank and Nifty Financial Services indices recorded gains of 0.91 percent and 0.48 percent, respectively, outperforming the benchmark Nifty 50, which saw a more modest 0.34 percent increase. Notably, the Nifty Bank and Nifty Private Bank indices showed a slightly lower uptick, rising by 0.30 percent.
Debt Market and Yield Impact
The central bank’s warning about using Open Market Operations (OMOs) to absorb excess liquidity, if necessary, led to a slight uptick in 10-year bond yields to 7.3 percent. This statement underscores the RBI’s commitment to managing liquidity levels in the market.
Individual Stock Performances
Several individual stocks in the automobile and real estate sectors witnessed gains. Companies such as TVS Motor Company, Maruti Suzuki India, Tata Motors, and Mahindra & Mahindra in the automobile sector each registered nearly a 1 percent increase in their stock prices. In the real estate sector, Godrej Properties, Macrotech Developers, DLF, and Prestige Estate Projects saw gains ranging from 1 percent to 2 percent. Additionally, stocks of PSU banks like Canara Bank, Punjab National Bank, Bank of Baroda, and Union Bank of India rose by up to 2 percent on the NSE.
Inflation Outlook and Factors
The RBI expects a near-term improvement in the inflation outlook due to corrections in vegetable prices and recent reductions in LPG prices. However, the future trajectory of inflation will depend on various factors, including lower area sown under pulses, reservoir levels, El Niño conditions, and global energy and food prices.
Market Outlook and Expert Opinion
Vinod Nair, Head of Research at Geojit Financial Services, noted that although interest rates have not increased as anticipated, they are expected to remain elevated for an extended period. This could impact rate-sensitive sectors such as banking, auto, core industries, and companies with heavy balance sheets. Additionally, elevated global bond yields and a stronger US dollar may affect the domestic economy and capital flows. However, the inclusion of government securities in the global bond index and moderation in inflation could support the Rupee and domestic corporate profits.
Conclusion and US Job Data Impact
In conclusion, the RBI’s decision to maintain the repo rate and its unchanged growth and inflation targets for FY24 had a positive impact on rate-sensitive sectors. Analysts are now closely monitoring the forthcoming US job data, which is expected to influence near-term market trends. Rate-sensitive sectors, particularly banks, are anticipated to react to positive Q2 results in the coming days.