Shares of tax-exempt sectors like banking, finance, auto and real estate fell as much as 8% after the Reserve Bank of India’s (RBI) policy decision.
The RBI on Thursday left the repo rate unchanged at 6.50% after the conclusion of its three-day monetary policy meeting. This is the sixth consecutive time the central bank has left policy rates unchanged and the longest pause in rates since 2008 in a rising interest rate environment.
“The RBI policy is more of a non-event as nothing new has been mentioned in it. India’s 10-year bond yield rose from the lows of 7.04% to 7.09% while the governor kept stressing that RBI will keep an eye on inflation to cool down. below 4% so that they are comfortable with rate cuts,” said Apurva Sheth, Head of Market Outlook and Research, SAMCO Securities.
Following RBI’s policy decision and rise in bond yields, shares of PSU bank stocks fell as much as 8%.
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Indian Overseas Bank plunged 8%, and UCO Bank was down more than 7% in Thursday’s trading. Central Bank of India, Punjab & Sind Bank and Bank of Maharashtra fell 4-6%. Meanwhile, private sector banks such as Axis Bank, ICICI Bank, Kotak Bank and HDFC Bank declined by 1-3%.
Meanwhile, shares of auto players like Maruti Suzuki, Eicher Motors, M&M and Tata Motors fell as much as 2% after the RBI policy announcement.
Shares in other rate-sensitive real estate also fell as much as 4%. Brigade Enterprises, Shobha, Godrej Properties, Lodha and Prestige Estate Projects declined 1-4%.
The central bank’s Monetary Policy Committee also maintained its stance of remaining focused on the “withdrawal of accommodation”.
Despite monetary policy action on expected lines, the equity market fell. Sensex lost over 700 points while Nifty slipped below the 21,750 mark.
Unlike the previous meeting, the decision to leave rates unchanged this time was favored by 5 of the 6-member MPC panel.
“These decisions are consistent with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth,” RBI said in its policy statement. .
In addition, the central bank also left its inflation forecast for FY24 unchanged at 5.4%, despite concerns over rising food prices and uncertainty around crude cost. On the growth front, the MPC has projected the Indian economy to grow by 7% in FY25. The growth rate for Q1, Q2, Q3 and Q4 in FY25 was projected at 7.2%, 6.8%, 7% and 6.9% respectively.
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