Indian benchmark indices fell up to 1% on Thursday after the Reserve Bank of India (RBI) kept its key lending rate unchanged for the sixth straight time, broadly in line with Street expectations. The Governor Shaktikanta Das-led monetary policy committee (MPC) maintained the repo rate at 6.5% in the sixth straight meeting, after having raised it by 250 basis points between May 2022 and February 2023, in the backdrop of rising headline inflation as well as increasing geo-political tensions leading to supply chain disruptions and price volatility in key commodities, especially crude oil. The RBI also projected GDP growth rate at 7% for FY25.

Reacting to the RBI’s policy decision, Indian benchmark indices slipped into negative terrain, paring opening gains. The BSE Sensex declined as much as 747 points to hit a low of 71,405, after opening higher at 72,473, up 321 points against the previous closing level of 72,152. In the BSE sensex pack, 24 out of 30 stocks were in red, barring State Bank of India, Power Grid, HCL Tech, and TCS.

The rate-sensitive stocks also witnessed choppy trade after the MPC policy announcements, with auto realty, and bankex indices falling up to 1%.

The BSE auto index fell nearly 1%, with index heavyweights Maruti Suzuki, Eicher Motors, M&M, Tata Motors, TVS Motors declining up to 2% after the RBI's policy announcement.

In the realty space, there was a mixed trend, with Sobha, Godrej Properties, Lodha, and Prestige sliding in the range of 1-3%. On the other hand, Phoenix, Oberoir, and DLF gained up to 2%.

Explaining the impact of the RBI policy on real estate and home loan borrowers, Kaushik Mehta, Founder & CEO of RUloans Distribution, says, “This decision reflects the RBI's cautious yet optimistic stance, aligning with a stable interest rate environment and fostering borrower confidence for informed financial decisions. Borrowers, particularly in home and personal loans, may explore options to optimize their financial commitments, such as transferring loans to banks offering lower rates or opting for part payments to reduce EMIs."

In the banking space, PSU banks continued to hold ground, while private lenders slipped into negative terrain. The BSE Bankex index fell as much as 1.3%, as sharp losses in private sector banks offset gains in PSU banks. Axis Bank was the worst performer on the BSE Sensex pack with a 3% loss, while ICICI Bank, HDFC Bank, and Kotak Mahindra Bank declined up to 2%.

Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS, says, “The banking sector is currently facing challenges in deposit mobilisation, whereas credit growth continues to remain healthy. Thus, banks will have to garner deposits, especially retail deposits aggressively. However, if banks cannot maintain the pace of deposit growth, it could weigh on margins and credit growth. Margins will continue to face headwinds for the next couple of quarters, with CoF moving upward. In our view, RoA for banks have peaked out.”

In the PSU bank space, SBI, the country’s largest lender, was the top gainer, rising 5% to hit a fresh all-time high, while Indian Bank, Bank of India, Canara Bank, and Bank of Baroda gained in the range of 2-4%. On the other hand, Indian Overseas Bank, UCO Bank, Central Bank, and Maharashtra Bank dropped up to 7%.

The Nifty PSU Bank hit a fresh all-time high of 7,035 points today, registering a gain of 24% in the last one month. Most of the PSU banks have touched their 52-week highs or are trading near record high levels amid sustained rally in the PSU bank index. The rally in the PSU bank stocks was driven by their healthy third quarter earnings figure as their combined profit stood at ₹68,061 crore in the first half of the current fiscal (H1 FY24), a jump of 66% over H1FY23's profit of ₹40,991 crore. 

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