Interest rate sensitive banking, auto and realty stocks cheered the RBI’s move and surged when a ‘more than expected’ 0.50 per cent cut in repo rate was announced on April 17, a move which is likely to lower the cost of home, auto and corporate loans.
“The RBI’s move to cut the repo rate by 50 bps comes as a welcome surprise. The overall headroom for interest rates to come down is likely to be a moderate 75-100 bps over the course of the year, which itself is a major positive for the overall corporate earnings growth outlook, especially for rate sensitives such as banks and infrastructure, Mr. Dinesh Thakkar, CMD, Angel Broking, said.
From the auto space, Apollo Tyres soared 5.54 per cent, Hero MotoCorp went up by 2.71 per cent, Bajaj Auto gained 1.32 per cent and Tata Motors was up 0.35 per cent. Following the surge in these stocks, the BSE auto index settled 0.80 per cent higher at 10,371.53.
In its annual monetary policy for 2012-13, RBI cut repo rate, at which it lends to banks, by 0.50 per cent at 8 per cent to spur economic growth.
The 50 bps reduction in repo rate is expected to translate into similar lending rate cuts by banks in the coming months. The reduction in deposit rates could lag the reduction in lending rates, which could create some pressures on the margins of banks in the next few months, it said.
However, on the back of expected pick-up in deposit accretion and improving liquidity, the cost of funds for banks is expected to also head lower with a slight lag, leading to an overall stable outlook for FY’13 margins.
Mr. Dipen Shah, Head of Fundamental Research, Kotak Securities, said: “The RBI has cut rates by 50 bps in a surprise move. For the markets, they now have only the fiscal action to look forward to. The future direction of the market hinges on how fast the Government is able to re-start the reforms process. We believe that the Government will start taking important decisions on reforms in due course, which will provide further impetus to the overall economy in the long term. Till these initiatives are taken, markets may remain range-bound and may be dictated more by the quarterly numbers and global markets.”
The RBI’s decision to cut repo rate by 50 basis points has been termed by market analysts as an “unexpected” positive move, but this could fuel inflationary pressures further.
Though the core inflation has witnessed some abatement, further rise in food prices has the potential to feed through into core inflation going ahead. As the upside risk to the headline inflation looms large, it leaves little scope for the central bank to further ease the policy rates at least in the near term.
Mr. Tarun Kataria, CEO India, Religare Capital Markets Ltd., said: “The RBI announcement was a pleasant surprise and reflects the concern about a rapid deceleration in GDP growth. If this can be supported by fiscal consolidation, a move to ease infrastructure bottlenecks and other progressive reforms, the India growth story can be revived quickly.”
– PTI Economic Service