Rate sensitives' display mixed trend after RBI hikes repo rate by 25 bps

At 11:00 am; Nifty Bank, Nifty Private Bank, Nifty PSU Bank and Nifty Financial Services are trading almost flat, as against 0.58% rise in Nifty 50.

Shares of rate sensitive sectors like banking, automobiles and realty traded mixed on Wednesday after the Reserve Bank of India (RBI) governor Shaktikanta Das announced a repo rate hike of 25 basis points (bps), thus taking the key benchmark interest rate to 6.5 per cent.

The Monetary Policy Committee (MPC's) decision was split 4-2. This is the first rate hike in 2023. Before this, the repo rate was hiked by 35 bps on December 7, 2022.

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, RBI said in MPC statement.

At 11:00 AM; Nifty Bank, Nifty Private Bank, Nifty PSU Bank and Nifty Financial Services traded almost flat. While, Nifty Auto and Nifyt Realty index were down up to 1 per cent. In comparison, the Nifty 50 was up 0.58 per cent at 17,823.

Bank of Baroda, IndusInd Bank, Axis Bank, Hero MotoCorp, Eicher Motors, Prestige Estates Projects and Oberoi Realty were down up to 1 per cent on the NSE. However, State Bank of India (SBI), HDFC Bank, Tata Motors and Mahindra & Mahindra traded higher by less than 1 per cent each.

RBI in its MPC statement said the stronger prospects for agricultural and allied activities are likely to boost rural demand. The rebound in contact-intensive sectors and discretionary spending is expected to support urban consumption. Businesses and consumers surveyed by the Reserve Bank are optimistic about the outlook.

Strong credit growth, resilient financial markets, and the government’s continued thrust on capital spending and infrastructure create a congenial environment for investment. On the other hand, external demand is likely to be dented by a slowdown in global activity, with adverse implications for exports, RBI said.

Meanwhile, analysts at Emkay Global Financial Services in banking sector report dated January 27, 2023 said that the Indian banking system witnessed slight moderation in credit growth to 15 per cent YoY for the fortnight ended December 30, 2022 (vs 17.4 per cent in the previous fortnight), mainly due to the base effect (heavy lending to oil PSUs last year), while underlying growth in absolute terms remained robust. Deposit growth continued to be a laggard, at 9.2 per cent YoY, which remains a concern amid the tight liquidity situation, resulting in most banks turning aggressive in raising deposit rates in the last quarter.

“India’s banking sector outperformed in 2022, on the back of stronger-than-expected growth and sharp margin uptick benefiting from the rate cycle; this was reflected in the Q3 results as well, for most banks. However, there has been some consolidation in January 2023 which we believe is largely transient. We reckon that apart from growth/margins, acceleration in lumpy corporate resolution could be a supplementary catalyst for banks and we, thus, remain positive on the sector,” the brokerage firm said.