On October 9, rate-sensitive sectors experienced a significant surge after the Reserve Bank of India (RBI) announced a shift in its monetary policy stance from ‘Withdrawal of Accommodation’ to ‘Neutral.’ This change signals a potential interest rate cut in the upcoming December meeting, which has sparked renewed optimism in the markets.
Despite the policy shift, the RBI’s Monetary Policy Committee (MPC) opted to keep the repo rate steady at 6.5 percent for the tenth consecutive meeting. This decision reflects the central bank’s cautious approach in navigating economic challenges.
In his statement, RBI Governor Shaktikanta Das highlighted that the MPC, with five out of six members voting to hold the repo rate, unanimously agreed on the new neutral stance. This marks the first change in the RBI’s policy approach in two years. Alongside this decision, the bank maintained its inflation target for the fiscal year 2025 at 4.5 percent while projecting a robust real GDP growth of 7.2 percent.
Following the announcement, Indian stock markets rallied, with key indices experiencing notable gains. The Sensex rose by 608 points, or 0.75 percent, reaching a peak of 82,243, while the Nifty 50 increased by 208.3 points, or 0.8 percent, closing at 25,221.45. Broader indices, including midcap and smallcap stocks, outperformed the benchmarks, with both sectors climbing 1.5 percent each.
Impact on Rate-Sensitive Sectors
Banks and Financial Services Take the Lead
Rate-sensitive sectors responded positively to the RBI’s policy change, with the Nifty Realty index gaining over 2 percent. The Nifty PSU Bank and Nifty Financial Services indices both advanced approximately 1.5 percent, showcasing strong investor sentiment in these segments. Notably, the Nifty Bank and Nifty Private Bank indices also recorded gains exceeding 1 percent.
Within the Nifty Bank index, majority of stocks showed bullish trends. Punjab National Bank led the way with an impressive rise of over 2 percent, closely followed by SBI and Axis Bank, which also increased more than 2 percent each. Key performers included ICICI Bank and IndusInd Bank, both posting gains between 0.5 and 2 percent. However, Federal Bank and IDFC First Bank were exceptions, registering minor losses.
In the financial services sector, Shriram Finance took the lead with a 4 percent gain, while HDFC AMC and Chola Finance recorded increases of over 3 percent. Other notable gainers included Muthoot Finance, Bajaj Finance, HDFC Life, and SBI Cards, with all these stocks showcasing gains ranging from 1 to 3 percent.
Analyst Suresh Darak stated, “With the U.S. Federal Reserve’s recent rate cut, the RBI’s approach emphasizes monitoring key domestic indicators such as inflation and financial stability. The increase in oil prices due to geopolitical tensions poses additional challenges that likely influenced the MPC’s decision to maintain rates. If these global pressures are short-lived, we may see a rate cut in the upcoming policy cycle.”
Strong Gains in the Auto and Realty Sectors
In the auto sector, Exide Industries surged with over 4 percent gains, followed by Bosch, Tata Motors, and Motherson Sumi with increases of over 2 percent each. Other automotive companies, including TVS Motor Company and Maruti Suzuki, also experienced upward momentum, rising more than 1 percent during intra-day trading.
Meanwhile, in the real estate market, Lodha and Prestige Estates emerged as frontrunners with substantial gains of over 4 percent each. Other realty players, including Brigade Enterprises and Oberoi Realty, also saw increases of more than 1 percent, reflecting investor confidence in the sector.
Ramani Sastri, Chairman and Managing Director of Sterling Developers, commented, “The RBI’s decision to keep the repo rate unchanged means that home loan EMIs will remain stable for now. Although the real estate sector has shown significant growth, a rate cut would have further stimulated demand, especially as we approach the festive season. Lower interest rates can potentially drive economic growth and increase market demand across various sectors.”
As the festive season draws near, the positive investor sentiment in rate-sensitive sectors such as real estate, banking, and automobiles indicates a likely continuation of upward trends. The anticipation of a possible rate cut in December adds further optimism, potentially fueling broader market growth.
