Banking stocks fall, realty, auto pare losses after the Reserve Bank of India altered its stance on monetary policy

By: | Published: February 9, 2017 4:08 AM

Banking stocks fell on Wednesday ending the session in the red even as real estate and automobile stocks pared their losses after the Reserve Bank of India (RBI) altered its stance on monetary policy from accommodative to a neutral one.

The change in stance signals that interest rates may not come down for a while. (Reuters)The change in stance signals that interest rates may not come down for a while. (Reuters)

Banking stocks fell on Wednesday ending the session in the red even as real estate and automobile stocks pared their losses after the Reserve Bank of India (RBI) altered its stance on monetary policy from accommodative to a neutral one.

The change in stance signals that interest rates may not come down for a while. The BSE Bankex fell by 0.37% and ended the session at 23,227. Barring two, all the constituents of the BSE Bankex ended the session in red, with stocks falling anywhere between 0.05% and 1.32%.

The Sensex dropped by 45.24 points and closed the session at 28,829, a fall of 0.16%.The central bank left the key repo rate unchanged at 6.25% at its sixth bi-monthly monetary policy review. The repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds. Among the public sector bank stocks, Punjab National Bank fell the most by 1.32%, followed by Union Bank whose stock fell 1.13%.

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Shares of private banks like HDFC Bank, ICICI Bank, IndusInd Bank fell between 0.05% and 1.05%, with Axis Bank registering the biggest loss.

The BSE Realty index pared its losses to end the session at a three-month high of 1,487, a rise of 0.9%.

Prestige Estates Projects led the pack of real estate stocks with 3.6% gain. The largest real estate firm by market value – DLF gained 1.2% to R145.50 on BSE.The auto index also rose 0.68% and closed at 22,230. Among the auto companies – excluding Maruti Suzuki, Hero MotoCorp, and Bharat Forge – all stocks closed higher with Bosh and MRF gaining two percentage each.

The announcement was contrary to market expectations of 25bps repo rate cut. In a note to investors, “The domestic macroeconomic backdrop remains one of benign inflation, continued fiscal consolidation and sustained weakness in private capex. At the global level, though uncertainty persists, the situation still offers space as Fed is not in a hurry to raise rates immediately. In our view, this backdrop warrants a 25bps rate cut,” it said.

According to Fed funds futures, the probability of Fed rate hike in March is 24% and in May is 40.8%.

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