The Reserve Bank of India (RBI) surprised Dalal Street with a 25 basis points cut in repo rate to 6.25 per ent in its fourth bi-monthly monetary policy review of FY17. All the six member of the Monetary Policy Committee voted in favour of rate cut. For stock investors, a reduction in rates would normally benefit rate-sensitive stocks especially auto, banking, infrastructure and real estate. Cheering the announcement, the BSE Realty index and BSE Bankex, which were trading marginally in red in the noon trade, jumped by 0.80 per cent and 0.37 per cent, respectively. However, the BSE Auto index also wiped off some of its day’s losses and was trading with marginally in red (down 0.03 per cent).
A Reuters poll earlier showed 26 of 44 analysts surveyed were expecting the committee to hold rates, while 16 saw a 25 basis points cut.
After the rate cut, Pankaj Karde, senior vice president and head of institutional sales research, Systematix Shares & Stocks said, “In the banking space, we believe rates cuts would be positive for all banks, but we like State Bank of India and Bank of Baroda in particular. Hero MotoCorp and Bajaj Auto could do well as 2-wheeler segment is more price sensitive and a cut in repo rates can see a lot of action. Also, the domestic auto sales number for both Hero and Bajaj are exciting. In the infrastructure space, companies with high debt would be the key beneficiaries. We like NCC. The interest rates for NCC on an average is 12.5-13.5 per cent. The rating agencies have recently upgraded the Long Term credit rating of the company. Reduction of interest rates, would help NCC reduce interest cost.
Benchmark BSE Sensex was trading nearly 100 points up after the announcement of the rate cut.
G Chokkalingam, founder, Equinomics Research & Advisory said, “I believe Axis Bank and Karur Vysya Bank will benefit with the rate cut coupled with their attractive valuation. I am cautious on the further movement of domestic equity markets, therefore I am holding 15-20 per cent cash right now.”
The Reserve Bank retained GDP growth rate at 7.6 per cent for current financial year.