Rate sensitive stocks were trading mostly higher on Friday after the monetary policy announcement by the Reserve Bank of India (RBI) came in line with market expectations. In the banking, auto, and realty space, most of the stocks were flashing in green after the RBI hiked the repo rate – the rate at which it loans money to banks - by 50 basis points to 5.9% to combat rising inflation, which remained above the central bank’s target of 6% for the first eight months of 2022. The RBI governor Shaktikanta Das-led Monetary Policy Committee (MPC) also retained the inflation forecast for FY23 at 6.7% amid upside risks to food prices.
Among sectors, the S&P BSE Bankex was the top performer, with the index rising as much as 2% post policy announcement by the RBI. In the banking space, Bank of Baroda topped the chart with a 3.41% gain, followed by Federal Bank, Kotak Mahindra Bank, HDFC Bank, State Bank of India, which climbed between 2%-3%.
The auto sector witnessed mixed trends as the market feared that the hike in interest rates would apply a certain amount of brakes on the industry's growth, which is already battling with high input costs due to a spike in inflation. In the auto space, Bajaj Auto, Maruti Suzuki India, and Eicher Motors gained over 1%, while Tata Motors and TVS Motors were trading marginally lower.
The rate sensitive realty sector witnessed broad-based buying, barring few such as Lodha Developers, Prestige, and Brigade Enterprises. Lodha Developers was down 2%, while Prestige and Brigade Enterprises fell up to 1%. On the other hand, IBREL, Phoenix Mills, Godrej Properties, DLF, Oberoi Realty, Sobha, and Sunteck Realty were among notable gainers.
Meanwhile, the BSE benchmark Sensex was trading near its day’s high at 56,928, up 518 points, or 0.92% as the markets reacted positively to the policy announcement. The top gainers of the BSE Sensex pack were Kotak Mahindra Bank, HDFC Bank, UltraTech Cement, HDFC, and Titan Company, which rose in the range of 1%-2%.
According to market experts, the central bank is prioritising the fight against inflation and has given very balanced guidance. “The outcome of the MPC meeting is on expected lines as RBI raised the repo rate by 50bps. The central bank gave very balanced guidance emphasising on continuing resilient domestic economic growth with risks being rising instability in the global economic and financial environment. Overall the markets have reacted positively to the policy announcement,” says Ritika Chhabra- Economist and Quant Analyst, Prabhudas Lilladher.
According to Prasenjit Basu, Chief Economist, ICICI Securities, the policy decision was in line with expectations. “We expect a further increase of 25bp at the December MPC meeting, by which time CPI inflation will likely moderate to 6% YoY as the strong kharip crop is harvested. Once real interest rates are positive, the MPC can pause its rate hikes. The RBI too believes that CPI inflation will average 6%YoY in H2FY23,” he said.
Rahul Shresth, Vice President at Avener Capital, said, “The rate hike by the MPC was on expected lines. The rate hikes by the Fed and soaring food and energy prices pose a challenge to emerging economies including India. Withdrawal of the accommodative stance is an indication of the fact that the bigger challenge for the RBI is controlling inflation and keeping it within the tolerable range”.
Sameer Kaul, MD & CEO, TrustPlutus Wealth said, “Indian central bank has raised repo rates by 50 bps along expected lines. As the governor has noted, the global economy is in turmoil and India needs to be watchful both on the external account as well as in terms of the domestic fiscal situation. We expect the rbi to remain prudent in terms of balancing between growth and inflation.”
Murthy Nagarajan, Head-Fixed Income, Tata Mutual Fund, said, “RBI has lowered its GDP growth forecast to 7 % and CPI inflation has been maintained at 6.7 % for the current financial year. 67 % of the fall in forex reserves by 100 billion USD is due to revaluation effect. MPC maintains it stance of withdrawal of liquidity from the system. RBI refuses to state what could be the terminal repo rates and remain date dependent.”