Shares of rate sensitive sectors, mainly banking and automobiles, erased their early morning gains and were trading by up to 2 per cent, after the Reserve Bank of India (RBI) maintained status quo on repo rate at 5.15 per cent.
Springing a surprise, the monetary policy committee of the RBI maintained the repo rate at 5.15 per cent points (bps) in its fifth bi-monthly monetary policy meeting of the financial year 2019-20 (FY20) on Thursday. CLICK HERE TO READ FULL REPORT
At 12:25 pm, Nifty Bank, Nifty Private Bank, Nifty PSU Bank and Nifty Auto indices were down in the range of 1 per cent to 2 per cent on the National Stock Exchange (NSE). These indices corrected nearly 2.5 per cent from their intra-day highs touched ahead the RBI policy outcome.
In comparison, the benchmark Nifty 50 index was down marginally by 0.07 per cent. Nifty Realty index however, was trading in the green with 0.11 per cent gain on the NSE.
Punjab National Bank (PNB), YES Bank, RBL Bank, State Bank of India (SBI), IndusInd Bank, Canara Bank and Federal Bank from the banking space; and Ashok Leyland, Tata Motors, and Motherson Sumi Systems from the automobiles pack were down more than 1 per cent each on the NSE.
While the pause on the rates is attributed to transient inflationary risks, the central bank affirmed that there is space for policy action. On inflation front, the RBI sees the headline consumer inflation in H2FY20 in the range of 5.1-4.7 per cent, when compared to the earlier projection of 3.5-3.7 per cent. However, inflation is seen moderating to 4.0-3.8 per cent in H1FY21.
Meanwhile, on growth, the output gap remains negative and RBI concedes that the economy is weakening further. GDP growth projection for FY20 has been revised downward to 5 per cent, from 6.1 per cent -- estimated in the October monetary policy meeting.
“Though several fiscal measures and monetary easing will gradually feed into the real economy, triggering a moderate rebound in the activity during H1FY21. Given the growth-inflation dynamics, we still sense that RBI will deliver a rate cut of 25bps in February policy meeting given the widespread deceleration in the economy. Although RBI is concerned about near-term inflation risks, higher Rabi crop output will assuage the spike in food prices. Benign core-inflation will also persuade RBI to remain accommodative,” said Amar Ambani, Head of Research - Institutional Equities, YES Securities.