Realty shares decline after RBI monetary policy

Shares of nine real estate companies fell by 0.37% to 5.98% at 12:55 IST on BSE after RBI cut its benchmark lending rate viz. the repo rate by 25 basis points to 7.25% after a monetary policy review today, 2 June 2015, matching market expectations.

The Reserve Bank of India (RBI) made the announcement at 11:00 IST.

Indiabulls Real Estate (down 2.71%), DLF (down 0.85%), Hubtown (down 0.69%), Unitech (down 1.79%), Orbit Corporation (down 2.21%), Sobha (down 2.66%), Godrej Properties (down 2.35%), D B Realty (down 0.37%) and Prestige Estates (down 5.98%) edged lower.

Parsvnath Developers (up 1.72%), Oberoi Realty (up 2.59%) and Housing Development and Infrastructure (HDIL) (up 0.14%) rose.

The BSE Realty index was down 1.37% at 1,540.98 and was the third biggest loser among the sectoral indices on BSE. It underperformed the Sensex, which was down 1.24% at 27,503.27

Purchases of both residential and commercial property are largely driven by finance.

The Reserve Bank of India (RBI) kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL).

RBI said that since the first bi-monthly monetary policy statement of 2015-16 issued in April 2015, incoming data suggest that the global recovery is still slow and getting increasingly differentiated across regions.

The risks to inflation identified in April, still cloud the picture, the RBI said. First, some forecasters, notably the IMD, predict a below-normal southwest monsoon. Second, crude prices have been firming amidst considerable volatility, and geo-political risks are ever present. Third, volatility in the external environment could impact inflation. Therefore, a conservative strategy would be to wait, especially for more certainty on both the monsoon outturn as well as the effects of government responses if it turns out to be weak, it added.

With still weak investment and the need to reduce supply constraints over the medium term to stay on the proposed disinflationary path (to 4% in early 2018), a more appropriate stance is to front-load a rate cut today and then wait for data that clarify uncertainty, the RBI said in a press release. Meanwhile banks should pass through the sequence of rate cuts into lending rates, it added.

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