Rate sensitive shares trade firm as RBI MPC keeps repo rate unchanged

Shares of rate sensitive companies were trading firm, outperforming the market, after the Reserve Bank of India's (RBI's) monetary policy committee (MPC) decided to hold repo rate at 6.5 per cent for the fourth time in a row.

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target while supporting growth.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, RBI said in its Monetary Policy statement on Friday.
 

The Nifty Realty, and Nifty Auto indices were up 0.89 per cent and 0.54 per cent, respectively. The Nifty PSU Bank, and Nifty Financial Services indices, meanwhole, added 0.91 per cent and 0.48 per cent, respectively. In comparison, the benchmark Nifty 50 was up 0.34 per cent.

The Nifty Bank and Nifty Private Bank indices, however, were up 0.30 per cent at 10:37 AM. In the debt market, the warning from the governor that the central bank will resort to OMOs to absorb excess liquidity, if necessary, pushed the 10-year bond yields up marginally to 7.3 per cent.

Among individual stocks, TVS Motor Company, Maruti Suzuki India, Tata Motors and Mahindra & Mahindra from the automobiles sector were up nearly 1 per cent, while Godrej Properties, Macrotech Developers, DLF, and Prestige Estate Projects from the real estate pack gained in the range of 1 per cent to 2 per cent.

Canara Bank, Punjab National Bank, Bank of Baroda, and Union Bank of India from the PSU bank pack rose up to 2 per cent on the NSE.

The RBI said the near-term inflation outlook is expected to improve on the back of vegetable price correction and the recent reduction in LPG prices. The future trajectory will be conditioned by a number of factors like lower area sown under pulses, dip in reservoir levels, El Niño conditions, and volatile global energy and food prices.

"Interest rates haven't increased as anticipated. they, however, are expected to remain elevated for an extended period. This will have an implication on rate-sensitive sectors like banking, auto, core industries, and heavy-weighted balance sheet companies," said Vinod Nair, Head of Research at Geojit Financial Services.

The elevated global bond yields and appreciation of the US dollar will affect the domestic economy and capital flows. However, it should not have a deep overhang effect on the economy but rather a mixed bias in the short term. The inclusion of government securities in the global bond index and moderation in inflation, like food & international commodity prices, will support Rupee and domestic corporate profit even in a volatile global currency market, he added.

That said, analysts believe a completely in-line with expectations policy is neutral from the market perspective. Not only the policy rates, but the growth and inflation targets for FY24 also remain unchanged.

More than this status-quo statement from the MPC, tonight’s job numbers from the US will determine the market trend in the near-term. Rate sensitives like banks will start discounting the positive Q2 results expected in the coming days, they said.