Banking, realty stocks gain post RBI policy announcement

The banking and real estate shares are trading higher post announcement of the Reserve Bank of India (RBI) mid-quarter monetary policy review December 2010.

The Bankex is trading higher by 2% and realty is up 1% compared with the sub-1% rise in the benchmark Sensex. However, the auto index is down over 1% on the BSE.

Among the monetary measures, the RBI has decided to retain the repo rate at 6.25% and the reverse repo rate at 5.25% under the Reserve Bank’s liquidity adjustment facility (LAF). And the central bank has retained the cash reserve ratio (CRR) at 6% of net demand and time liabilities (NDTL) of schedule banks.

Repo rate is the rate at which banks borrow from RBI, while the reverse repo rate is the rate at which the central bank borrows money from banks.

On the liquidity front, the central bank has decided to reduce the statutory liquidity ratio (SLR) of scheduled commercial banks (SCBs) from 25% of their NDTL to 24% with effect from December 18, 2010 and to conduct open market operations (OMO) auctions for purchase of government securities for an aggregate amount of Rs 48,000 crore in the next one month, the scheduled for which is being issued separately.

“The above two measures are expected to inject liquidity on an enduring basis of the order of Rs 48,000 crore,” the central bank said in the statement.

The policy actions in this Review are expected to release sizable primarily liquidity into the system, bring down the liquidity deficit in the system close to the comfort zone; and stabilise the interest rates in the overnight inter-bank market closer to the operative policy rate, according to the Reserve Bank.

Among individual stocks, SBI, ICICI Bank, IDBI Bank, Vijaya Bank, Central Bank of India and Kotak Mahindra Bank in the banking pack are trading up over 2% each. And DLF, HDIL and Unitech from realty sector are up in the range of 1-2% on the BSE. However, Mahindra and Mahindra and Bajaj Auto are down more than 2% each.