Indian stock market saw a rally in rate-sensitive sectors like banking, real estate, and automobile on Friday, June 6, after the Reserve Bank of India (RBI) surprised investors by cutting the repo rate by 50 basis points. This brought the key lending rate down to 5.5 percent, from 6 percent earlier. The RBI also shifted its stance from ‘accommodative’ to ‘neutral’.
This is the second consecutive rate cut by the RBI, following a 25 bps cut in the April meeting. The larger-than-expected cut signals the central bank’s focus on boosting demand and supporting economic recovery.
Following the announcement, stocks in sectors that benefit from lower borrowing costs moved up. At 10:10 am, the Bank Nifty and Nifty Private Bank indices were in the green, while the Nifty PSU Bank index rose over 1 percent. The Nifty Realty index jumped 2 percent, and the Nifty Auto index was also up by 0.3 percent.
Lower interest rates means lower EMIs and borrowing costs for both consumers and corporates. This will boost home buying and vehicle purchases and support loan demand for banks and NBFCs.
Experts had expected only 25 bps cut, so this 50 bps cut was a good surprise. Analysts said real estate and infrastructure will benefit as big-ticket projects become more feasible. Consumer focused sectors like automobiles and discretionary will also get a push as credit becomes easier.
But while borrowers benefit, banks may face margin pressure if they can’t reduce deposit rates fast. Many home loans are now repo linked which means the benefit of rate cut is passed on to customers faster than before.
With RBI being more supportive and growth oriented, rate sensitive sectors will continue to see momentum in the near term.
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Source: Moneycontrol
News Desk
