Shares of automobiles, banks and realty companies rallied on Tuesday on the back of a 50-bps cut in repo rate by the RBI. The sectoral indices rallied between 0.7% and 1.5% during the session, wiping out the declines made during the first hour of trading.
With the Street anticipating a 25-bps cut, the RBI decision came as a surprise. The BSE sectoral index for banking scrips went up 176.18 points, or 0.9%, as shares of nine out of 10 banks constituting the index closed in the green.
IndusInd Bank and Bank of Baroda were the biggest gainers in the banking universe, climbing 2.14% and 1.66%, respectively.
Tuesday’s rally came as a relief as banking scrips were under selling pressure over the last one month. SBI — India’s largest public sector lender — has lost more than 13% since the beginning of August. ICICI and Canara Bank are trading more than 14% lower.
Last month, the government announced its decision to infuse more than R20,000 crore into PSU banks to address credit crunch.
Nirmal Jain, chairman, IIFL Holdings, termed the RBI’s decision as a ‘game-changing event’. “The RBI has done its bit with a larger cut. The government should accelerate the reforms process now,” Jain said.
Auto sector shares also rallied with the BSE Auto index closing 0.76% higher. Maruti and M&M posted the biggest gains, closing 3.12% and 2.48% higher. Falling commodity prices have helped auto makers improve their margins as steel is a key raw material, experts said. London-based HSBC said in a note to investors that the near-term scenario for auto companies looks positive despite lacklustre two-wheeler and four-wheeler industry trends.
“For most auto companies, FY16/17 earnings estimates have been resilient, particularly in the first quarter of FY16.Benign commodity prices and other cost-cutting efforts resulted in a strong margin performance. Some incremental benefit from the favourable commodity prices will provide near-term earnings resilience for auto companies and downside protection for stocks,” the note said.
The session was also good for real estate scrips as the BSE Realty index climbed nearly 2%. HDIL closed 9.8% while DLF and Sobha Developers gained 4.18% and 3.94%, respectively. Market participants hoped this would pave way for affordable housing once banks start passing on the benefits to end-consumers.
The BSE benchmark Sensex ended 162 points up to close at 25,778.66. The NSE Nifty rose 48 points, recapturing the
7,800 mark.