Shares of interest rate-sensitive stocks fell after the Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 6.50% on inflationary concerns. This is the second hike in the key policy rate in 2018-19 after the 25 basis points increase in June.
Repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.
The Nifty Bank index fell by 0.60% and ended the session at 27,596.60. Eight of the 12 constituents of Nifty Bank index declined.
The price of Bank of Baroda scrip fell by 3.52% and ended the session at Rs 147.95. The ICICI Bank stock ended the session at Rs 299.05.
The share price of Federal Bank, IDFC Bank, Axis Bank, HDFC Bank, RBL Bank and Yes Bank fell by more than 1%.
Auto stocks also fell. The Nifty Auto index fell by 0.76% and ended the session at 10,890.10.
Exide Industries declined the most and ended the session at Rs 270.10, a decline of 3.45%. Motherson Sumi fell by 2.31% and ended the session at Rs 314.65. The share price of Maruti Suzuki fell by 2.03% and ended the session at Rs 9,327.
The share prices of Eicher Motors, Bajaj Auto, TVS Motors, and Apollo Tyres declined by more than 1%.
The Nifty Realty index rose by 0.18% and ended the session at 273.05 though six out of 10 constituents declined. Indiabulls Real estate fell by 2.28%, HDIL by 2.07%, DLF, Oberoi Realty, and Unitech by more than 1%.
In a note to investors, Nomura said RBI’s reluctance to shift to a ‘tightening’ stance suggests that it is not convinced that a series of hikes is warranted, possibly because of global growth risks or because it expects inflation to taper gradually.
“Having delivered a cumulative 50 basis points of rate hikes already and with a real repo rate of ~1.7% (6.5% repo minus the RBI’s average CPI forecast of 4.8% in FY19), we expect the RBI to wait and see what kind of impact the already-delivered hikes will have.
Therefore, we expect rates will be left unchanged through FY19,” the note said.