Indian benchmark indices were trading higher on Wednesday, snapping two-day losing streak, as investors cheered the Reserve Bank of India (RBI’s) policy decision. The Governor Shaktikanta Das-led monetary policy committee (MPC) hiked the repo rate by 25 basis points to 6.5% in the first meeting of the calendar year 2023, which was broadly in line with D-Street estimates.
Following the MPC policy announcement, rate-sensitive stocks slipped in red as the central bank raised the repo rate for the sixth time in a row, which is likely to impact consumption and demand for loans. According to Ajit Kabi, Banking analyst at LKP Securities, “The rate hikes are likely to raise the EMI burden for floating rate linked loans. However, the bank’s NIMs are likely to stay stable as an increasing proportion of EBLR linked loans.”
The BSE Bankex index were trading near baseline with a negative bias, paring opening gains, led by private sector lender such as Axis Bank, Kotak Mahindra Bank, Federal Bank, and IndusInd Bank, which fell up to 0.5%. Among public sector lender, Bank of Baroda was also down 0.5%, while State Bank of India, the country’s largest lender, was trading marginally higher. ICICI Bank and HDFC Bank also edged higher, holding early leads.
In the auto space, Maruti Suzuki India, HeroMoto Corp, Eicher Motors were among top laggards, declining up to 2%. On the flip side, Bajaj Auto, Ashok Layland, Tata Motors, M&M, and TVS Motors saw some buying.
The real estate sector was also under stress, with shares of Prestige, Sobha, Lodha, Oberoi Realty trading marginally lower.
Meanwhile, the BSE Sensex was trading 313 points, or 0.52%, higher at 60,599 levels, and the NSE Nifty was at 17821, up by 99 points, or 0.56%, at the time of reporting. In line with the benchmark indices, the broader market also witnesses surge in buying, with midcap and smallcap indices rising 0.28% and 0.18%, respectively. The top gainers of the BSE Sensex pack were UltraTech Cement, Infosys, Tata Consultancy Services, Reliance Industries, and Bajaj Finance, which gained between 1-3%. On the sectoral front, IT and Tech stocks were among top performers.
In the first policy meeting after the Union Budget 2023, the RBI MPC on Wednesday announced a 25 basis points (bps) hike in the key repo rate to 6.50%, while withdrawing the “accommodative stance” to tame high inflation in the country. The standing deposit facility rate has been revised to 6.25% from 6% earlier, whereas the marginal standing facility and bank rate have been hiked 25 basis points to 6.75%.
The central bank projected the real GDP growth for FY24 at 6.4%, with Q1 at 7.8%, Q2 at 6.2%, Q3 at 6%, and Q4 at 5.8%.
Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS says the rate hike is a reflection of the easing inflation, which has been below the regulator’s tolerance band with a moderation of 105 bps in the last two months. “There could be another rate hike in the coming months before a pause on the interest rates,” he says.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, says the highlight of the monetary policy announcement which came on expected lines is the better than expected increase in GDP growth rate for FY24 to 6.4% with sharp upward revision in FY Q1 and G2 growth rates to 7.8% and 6.2% respectively. “This is a reflection of the central bank’s confidence in the economy maintaining the present growth momentum. The Governor stressed the fact that the credit growth in the economy is 16.7% YoY in January. Optimism regarding FY 24 GDP growth and containing the CPI inflation at 5.3 % is good news for the equity markets even in the context of unabated selling by FIIs,” he adds.
Deepak Agrawal, CIO – Debt, Kotak Mahindra Asset Management Company, says, “RBI hiked rates by 25 bps in line with expectation by 4:2 vote in favor of hike. Core Inflation and Financial Stability concern led to “withdrawal of accommodation” stance being maintained as against market consensus. Based on RBI forward looking FY 24 inflation forecast of 5.30%, at 6.5% repo rate, the real rate is 1.25%. We believe this is the last rate hike in this cycle.”
“The policy is exactly what the doctor ordered and is in line with expectations. Core inflation remains sticky and larger global central banks continue to raise rates and hence the RBI stance as well as the interest rate move may help break core inflation persistence and that in turn will strengthen the medium-term growth prospects of the Indian economy,” says Sachchidanand Shukla, Chief Economist, Mahindra Group.
