Rate-sensitive stocks were trading mixed on Wednesday in afternoon trade after the Reserve Bank of India’s (RBI’s) monetary policy committee cut the benchmark repo by more-than-expected 35 basis points to 5.4% in the August policy review, citing downside risks to economic growth. Though the banking and realty stocks were mildly positive, auto stocks were trading lower after the RBI’s policy decision.
The monetary policy committee (MPC), while maintaining an ‘accommodative’ stance, revised the reverse repo rate to 5.15% and the marginal standing facility rate and bank rate to 5.65%. The central bank also cut it economic growth outlook for FY20 to 6.9% from 7% in its policy review.
Financial stocks gained as the rate cut was expected to boost credit growth in the banking system. The BSE Bankex pared initial losses to trade 0.4% higher in afternoon trade. Among major gainers were Yes Bank (up 6%), IndusInd Bank (up 2.4%), ICICI Bank (up 1%), though the State Bank of India (SBI) was trading in the red, down 0.5%.
The BSE Realty Index was also trading higher by 0.5%. Stocks like Prestige Estates Projects Ltd jumped 3.5%, DLF Ltd gained 2% while Sobha Ltd was up 1.5%.
However, auto stocks continued to trade in the negative zone despite RBI’s rate cut. The S&P BSE Auto Index was trading down 0.6% in afternoon trade, with Mahindra and Mahindra Ltd (down 2%), Maruti Suzuki (India) Ltd (down 1%) and Tata Motors Ltd (down 0.7%) being key losers. However, two-wheeler stocks like Hero MotoCorp Ltd and TVS Motor Co. Ltd gained 2% and 0.5%, respectively.
RBI, in its policy statement on 7 August, said: “Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate,”
This is the fourth consecutive rate cut by RBI’s MPC since February, which has lowered the key policy rate by a cumulative 110 basis points in the current easing cycle. Also, this is the first time ever that the central bank has gone with an unconventional measure instead of the usual practice of using multiples of 25 basis points. The change was suggested by RBI Governor Shaktikanta Das earlier this year.
RBI said that four members of MPC, including Das voted in favour of 35 basis points cut, while two voted for a 25 basis points cut.
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