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Rate sensitive stocks trade weak post RBI policy

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The stocks of rate sensitive sectors – banking, real estate and automobiles – were trading weak after the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the repurchase (repo) rate unchanged at 6%.

Consequently, the reverse repo rate under the liquidity adjustment facility (LAF) remains at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25%, the said in its fifth bi-monthly monetary policy statement.

At 02:43 PM; Nifty PSU Bank, the largest loser among sectoral indices, was down 2%. The Nifty Private Bank and indices were down 1% each, as compared to 0.78% decline in the Nifty 50 index. Nifty Auto and index were down 0.78% and 0.41%, respectively.

State Bank of India (SBI), Union Bank of India, Bank of Baroda, Punjab National Bank and ICICI Bank were down in the range 1% to 2%.  Mahindra & Mahindra (M&M), Bajaj Auto, Prestige Estate were down 1% each.

As per MPC’s assessment, there have been several significant developments in the recent period which augur well for growth prospects, going forward.

First, capital raised from the primary capital market has increased significantly after several years of sluggish activity. As the capital raised is deployed to set up new projects, it will add to demand in the short run and boost the growth potential of the economy over the medium-term. Second, the improvement in the ease of doing business ranking should help sustain foreign direct investment in the economy. Third, large distressed borrowers are being referenced to the insolvency and bankruptcy code (IBC) and public sector banks are being recapitalised, which should enhance allocative efficiency.

However, the MPC notes that the impact of these factors can be buttressed by reducing the cost of domestic borrowings through improved transmission by banks of past monetary policy changes on outstanding loans.

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