Rate cut effect: Markets recover but bank, realty stocks slump

The much-awaited RBI policy review although cut repo rates by 25 basis points, it’s only a half measure since it retained the Cash Reserve Ratio at 4 percent. This hasn’t made the investors very happy who had already factored in the 25 basis cut. Moreover, the central’ bank’s hawkish guidance of " very limited room" to further ease monetary policy seems to have dampened sentiment further.

At 11.40 am Sensex was at 19673.29, down 0.32 percent and the Nifty was at 5978.10, down 0.35 percent. The markets recovered from the lowest points of the day after the RBI statement as “Market participants had expected worse. 25 bps did happen. It is not as bad as investors had thought,” said UR Bhat of Dalton Capital in an interview with CNBC-TV18.

The Central bank yesterday warned of “very limited” space for further easing of monetary policy, striking a hawkish tone. India’s headline inflation in March fell to its lowest in more than three years at 5.96 per cent, but the consumer price index remained elevated at 10.39 per cent, a key worry for the RBI.

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[caption id=“attachment_749057” align=“alignleft” width=“380”] Realty stocks including DLF (2 percent) and Oberoi Realty (1.34 percent) were down. Reuters[/caption]

Rate-sensitive banking stocks including ICICI Bank (2 percent), HDFC Bank (0.46), State Bank of India (1.71 percent) slipped.

Banks were down as the RBI has reduced statutory liqidity ratio (SLR) holding under held to maturity category to 23 percent from 25 percent. This essentially means that banks will have mark to market more government securities than earlier. This is likely to impact their profitability.

Realty stocks including DLF (2 percent) and Oberoi Realty (1.34 percent) were down.

Commenting on the rate-cut, C Rangarajan, the chairman of the Prime Minister’s Economic Advisory Council, termed the rate cut as a ‘good decision’ and added that growth is in early stages of recovery.

He, however, noted that further cuts depend on how inflation behaves going ahead. “Inflation needs to come down for further monetary easing.”

“Little space” should not be read as no possibility of further cuts, said Rangarajan.