Sensex, Nifty trade flat as RBI keeps repo rate unchanged; bank, auto stocks edge higher

Indian benchmark indices, Sensex and Nifty, edged higher in choppy trade on Friday after the Reserve Bank of India (RBI) kept repo rate unchanged in its December policy meeting today, which was in line with Street expectations. The RBI monetary policy committee (MPC) led by Governor Shaktikanta Das left the repo rate unchanged at 6.5% for the eleventh consecutive time since February 2023.

Following the RBI policy announcement, the BSE benchmark Sensex declined as much as 260 points, or 0.31%, to hit a low of 81,506 in the first hour of trade so far. In a similar trend, NSE Nifty dropped 88 points, or 0.35%, to touch a low of 24,620.

However, the benchmark indices soon pared losses and were trading higher at the time of reporting. The 30-share pack Sensex was trading flat at 81,760, and the Nifty50 was at 24,700 level. Early today, the equity benchmarks opened flat with a negative bias, after ending higher for the fifth straight session on Thursday, as investors turned jittery ahead of the RBI policy decision. The market was moving near its base line, swinging between gains and losses.

Rate-sensitive sectors such as banking and auto witnessed some buying, while real estate space was under stress. The central bank has announced a reduction in the Cash Reserve Ratio (CRR) from 4.5% to 4%, which is expected to inject an additional ₹1.16 lakh crore into the banking system, providing much-needed relief to lenders.

The S&P bankex index rose 0.4% with sectoral leaders State Bank of India, Axis Bank, Bank of Baroda, ICICI Bank trading higher with modest gains. On the other hand, HDFC Bank, Kotak Bank, Federal Bank edged lower.

On the other hand, S&P BSE Realty Index was down 0.5%, led by Godrej Properties, Brigade, and Sobha, falling up to 2%. Among others, Oberoi Realty, Prestige Mahindra Lifespace, Lodha, DLF were trading higher.  

The auto space witnessed mixed trend, with heavyweights M&M, Tata Motors, Hero MotoCorp, Bajaj Auto trading in positive terrain.

According to market expert, monetary policy has delivered exactly what the economy and markets need in the present context. “The Governor’s emphasis on price stability is appropriate given the elevated level of inflation. The decision to cut the CRR by 50bp facilitating injection of Rs 1.16 trillion of liquidity into the system will ease the liquidity constraints and more importantly reduce the banks’ cost of funds,” says V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

“From the market perspective, this is an excellent policy response. Banking stocks will remain resilient," he adds.

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank says, “The RBI delivered in line with our expectations. While retaining its focus on last mile disinflation being achieved the RBI has taken note of the tightening durable liquidity and hence delivered the CRR cut.”

“We see room for a 25 basis points repo rate cut in February with much dependent on the downside risk to growth which we foresee. Further disinflationary trends and global environment will also be key,” she says.

The RBI Governor said that the central bank will also continue with a 'neutral' policy stance. "The last mile of inflation is turning out to be prolonged and arduous. The monetary policy has a wide-ranging impact, price stability is important for every segment of society," says RBI Governor Shaktikanta Das.

Das says the growth outlook is resilient but warrants close monitoring. The RBI has cut the GDP growth projection to 6.6% for current financial year, from earlier forecast of 7.2%. The downgrade comes amid a 'major fall' in Q2 FY25 GDP growth to 5.4%, following which many major financial institutions have also cut the full fiscal year growth forecast for India.

In a positive development, Das says high-frequency indicators, however, suggest slowdown in economic activity bottomed out in Q2, and that Q3 and Q4 GDP growth is expected at 6.8% and 7.2%, respectively. Only durable price stability is necessary to secure strong foundation of growth," says Das.