Rate sensitive stocks such as banks and financial services, auto, and realty were reeling under selling pressure on Wednesday after the RBI Governor Shaktikant Das raised the repo rate by 35 basis points (bps), the sixth rate hike in a row, in line with Dalal Street estimates. After three consecutive hikes of 50 bps, the six-member Monetary Policy Committee (MPC) was widely expected to slow the pace of monetary tightening as inflation showed signs of easing in the last month. The higher interest rate means higher borrowing costs for buying homes, vehicles, and other consumer durables.
Among interest rate sensitive stocks, realty sector was the biggest loser as investors fear that the continued rise in interest rates would impact housing sales. The rate hike will also push up home loan interest rates and equated monthly instalments (EMIs) for loans taken to buy a house. The BSE Realty index dropped 1.18%, with Oberoi Realty, DLF, Godrej Industries, Sobha and Brigade Enterprises falling in the range of 1-3%.
The BSE Bankex index slipped 0.35% with all major banks, barring ICICI Bank and Bank of Baroda, were trading in red. Federal Bank was the top laggard with a 1.8% loss, followed by Kotak Mahindra Bank, IndusInd Bank, HDFC Bank, State Bank of India, Axis Bank, among others.
The auto space also witnessed selling pressure with index heavyweight Tata Motors and Hero MotoCorp falling up to 2%. Among others, TVS Motors, Ashok Leyland, Escorts, Bajaj Auto, Eicher Motors, M&M, and Maruti Suzuki were also trading lower with marginal losses.
Meanwhile, the BSE benchmark Sensex slipped 175 points to trade near day’s low of 62,451 following the RBI policy announcement. The central bank raised the repo rate, the rate at which RBI lends money to commercial banks, by 35 bps to 6.25%. Consequently, the standing deposit facility (SDF) rate was adjusted to 6%, and the marginal standing facility (MSF) rate and the bank rate to 6.5%. The RBI MPC expects inflation to be above 4% in the next 12 months, while it lowered GDP growth forecast for the October-December quarter to 4.4%.
Commeting on the RBI policy, Sachchidanand Shukla, Chief Economist, Mahindra & Mahindra said the RBI policy was completely in line with expectations and probably the easiest policy decision since May for the MPC, in the backdrop of looming global recession fears, easing crude prices and the USD index coming off highs. “However, there is a clear fork in the road where growth is becoming a much bigger problem even as it is too early to take eyes off inflation given the inflation persistence. Hence, it is reassuring that the Governor remains watchful on growth even as he has ‘Arjuna’s eye on inflation’,” he said.
Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company, said, "The RBI has given a “Main Hoon Na” (we are there) policy, reassuring the market. In a world where central banks are fighting to regain credibility, the RBI stands tall managing conflicting objectives of growth and inflation admirably.”
Sujan Hajra, Executive Director, Chief Economist, Co-Head Research Anand Rathi Shares and Stock Brokers, said, “With the 35 bps repo rate hike today, the RBI seems to be close to the peak of policy rate hike in this cycle and another 25 bps rate hike seems to be already factored in by the debt market.”