RBI Monetary Policy: Rate-sensitive sectors see mixed reaction as RBI cuts repo rate

RBI Monetary Policy: The rate-sensitive sectors on Friday, February 7, exhibited a mixed response to the Reserve Bank of India’s (RBI) decision to lower the repo rate by 25 basis points to 6.25 per cent from 6.5 per cent. This marked the first rate reduction in nearly five years, with the previous cut occurring in May 2020 when the repo rate was slashed to 4 per cent. The Monetary Policy Committee (MPC) also opted to maintain its ‘neutral’ stance.

This policy meeting was the first under the leadership of new RBI Governor Sanjay Malhotra, who took office in mid-December. The central bank retained its forecast for Consumer Price Index (CPI)-based inflation at 4.8 per cent for FY25, while projecting GDP growth at 6.7 per cent for the same period.

Market Reaction and Volatility

Following the policy announcement, Indian stock markets witnessed volatility. The BSE Sensex dropped 328 points, or 0.4 per cent, to touch an intraday low of 77,730.37. Meanwhile, the Nifty 50 declined by 110 points, or 0.4 per cent, to 23,493.60. The broader market indices underperformed, with midcap stocks falling by 0.6 per cent and smallcap stocks declining by 1 per cent.

Performance of Rate-Sensitive Sectors

The rate-sensitive sectors reacted sharply to the RBI’s policy shift. The Nifty Bank and Nifty Financial Services indices slipped over 0.4 per cent each, while Nifty PSU Bank and Nifty Private Bank fell by 0.8 per cent and 0.4 per cent, respectively. In contrast, Nifty Auto gained 0.6 per cent, and Nifty Realty advanced by 1 per cent.

Banking and Financial Services Under Pressure

Banking and financial stocks saw a broad decline. Within the Nifty Bank index, major players such as SBI, Bank of Baroda, Axis Bank, and ICICI Bank registered losses exceeding 1 per cent each. AU Small Finance Bank was an exception, rising by 2 per cent.

Among PSU banks, Union Bank of India was the only stock in the green, while Maharashtra Bank, Punjab National Bank (PNB), and Bank of India were among the top decliners. In the financial services segment, PFC dropped over 1 per cent, while HDFC AMC, ICICI Prudential, Chola Finance, LIC Housing Finance, and SBI Cards fell more than 0.5 per cent each. However, Muthoot Finance and Shriram Finance managed to gain over 0.5 per cent each.

Auto and Realty Sectors Outperform

The auto sector displayed resilience, with Apollo Tyres leading the gains, surging nearly 3 per cent. Ashok Leyland and Mahindra & Mahindra (M&M) followed with over 1 per cent gains each. Bajaj Auto, Hero MotoCorp, Motherson, and Tata Motors added 0.5 per cent each. On the downside, Balkrishna Industries declined by 0.7 per cent, while Bosch and MRF also ended lower.

In the realty space, Lodha Group emerged as the top performer, rising over 2 per cent, while Godrej Properties, Oberoi Realty, Phoenix Mills, and Sobha gained more than 1 per cent each. DLF and Raymond also saw gains exceeding 0.5 per cent. Brigade Enterprises was the only stock in the red within the sector.

“In terms of the impact on the housing sector of the RBI’s decision to reduce the repo rates by 25 bps, this piggybacks on the recent taxation benefits announced in the Union Budget. As such, it is undeniably a major boost to the homebuyers, particularly for affordable housing buyers. Many first-time homebuyers who had been hesitating to take the plunge are likely to make their move now as home loan rates will reduce – as long as banks pass on the key benefits to buyers. This dovetails well with recent trends in the housing market, which continues to see strong momentum. Reduced home loan rates can help the overall positive consumer sentiment. Given that housing prices have risen across the top 7 cities in the last one year, this breather is welcome and timely. Commercial real estate, especially office spaces, can also benefit from lower borrowing costs for businesses, and lower rates also make REITs more appealing since investors look for stable returns in a falling interest rate environment,” said Anuj Puri, Chairman – ANAROCK Group.

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