Among the rate-sensitive sectors, real estate stocks rallied after the RBI doubled the amount that cooperative banks can lend to individuals for buying homes, a measure that is set to boost demand for affordable housing.
The equity markets gave up initial gains on Wednesday as selling in the heavyweights dragged the benchmarks down in afternoon trade, even as the repo rate hike came in line with the Street’s expectations. In a bid to contain rising inflation, the Reserve Bank of India (RBI) on Wednesday hiked the policy rates by 50 basis points (bps) to 4.9% and echoed further tightening would be calibrated by ensuring adequate liquidity in the system.
Among the rate-sensitive sectors, real estate stocks rallied after the RBI doubled the amount that cooperative banks can lend to individuals for buying homes, a measure that is set to boost demand for affordable housing. The Nifty Realty gained the most (1.6%). “Raising the lending limits by 100% for cooperative banks is a positive step that will encourage housing development outside of Tier I and Tier II cities,” said Sanjay Dutt, MD& CEO, Tata Realty and Infrastructure. While the Bank Nifty declined 0.14%, the gauge for auto stocks, Nifty Auto, advanced 0.18%.
After gaining about 0.6% intra-day, both the Sensex and Nifty50 closed 0.4% lower. RIL declined nearly 2% to end at Rs 2,724.05 on the NSE. While the Sensex slid 214.85 points to close at 54,892.49 points, the broader Nifty50 lost 60.10 points to 16,356.25.
Dhiraj Relli, MD & CEO, HDFC Securities, argued, “The bond markets and equity markets reacted well to the MPC outcome, being relieved that the MPC did not sound more hawkish than most expectations. Absence of a CRR hike was also a relief.”
The fall in broader market was relatively less, with the midcap and smallcap indices losing less than the Sensex. While the BSE Midcap fell 0.2%, the BSE Smallcap ended the day 0.3% lower.
According to Aishvarya Dadheech, fund manager, Ambit Asset Management, equity and bond markets have not reacted wildly to the steep hike in repo rate, as it was more or less in line with market expectations. “Market believes RBI has taken quick change in policy stance, with 90 bps rate hike so far, to keep inflation under control. Hence, if commodity price level moderates and inflation plateaus, there will be less requirement of any steep rate hike from hereon,” said Dadheech, adding that RBI’s reaffirmation of 7.2% real GDP growth also helped the market to gauge that the central bank is still supporting growth while ensuring inflation doesn’t go out of control.
Foreign portfolio investors continued their selling spree. On Wednesday, FPIs sold equities worth $319.6 million, taking their month-to-date sale tally to $1.5 billion. Domestic institutional investors bought shares worth $245 million on Wednesday, provisional data on the exchanges revealed.