Real estate stocks jumped as much as 10% on Thursday in anticipation of the RBI's Monetary Policy Committee (MPC) decision, scheduled for Friday. Market expectations are tilted toward a 25-basis-point repo rate cut, along with a continued accommodative stance—a positive signal for rate-sensitive sectors like real estate.
The Nifty Realty index was the top-performing sectoral index on Thursday, climbing up to 2% in intraday trade before settling 1.75% higher. Since May 9, the realty index has surged more than 20%, outpacing the 3% gain made by the benchmark Nifty50 index.
Meanwhile, India’s equity market extended gains on Thursday as the BSE Sensex surged 443.79 points or 0.55% to close at 81,442.04, and the NSE Nifty50 advanced 130.70 points or 0.53% to settle at 24,750.90.
Investors demonstrated robust demand for real estate stocks in anticipation of the RBI's upcoming policy decision on Friday. Market experts widely expect a 25-basis-point reduction in the repo rate -marking the third consecutive cut - as inflationary pressures ease.
A small fraction also hopes the RBI goes for a 50 bps rate cut after retail inflation dropped to 3.16% in April, giving the central bank wider flexibility to prioritize economic expansion.
Vimal Nadar, National Director and Head of Research, Colliers India, said, "A third consecutive reduction in benchmark lending rates can spur homebuyers’ sentiment and resultantly improve housing demand, particularly in affordable and middle-income segments. For developers too, the rate cut could aid in gradual inventory clearance and offer financial relief by lowering of borrowing costs.”
Piyush Bothra, Co-Founder and CFO, Square Yards said that an 1% reduction in interest rates can increase a homebuyer’s purchasing power by nearly 10%, turning the dream of owning a house into reality for a larger population.
Among the Nifty Realty index, Sobha Ltd led the rally, jumping 9% to hit an intraday high of Rs 1,648 per share on the NSE. It settled nearly 6% higher at 1,602 apiece. Among other gainers, Brigade Enterprises DLF and Prestige Estates advanced about 3% each. Among the non index stocks, shares of Puravankara Ltd hit an upper circuit of 10% to settle at Rs 306.90.
Industry experts believe that consumption-led and infrastructure share may see buying interest if the RBI goes for a rate cut on Friday. However, the impact of an expected rate cut on banking stocks is expected to be mixed.
VR Krishnan, Head of Quantitative Research at Marcellus Investment Managers, said, “A 25 bps rate cut typically supports discretionary consumption. Most auto purchases in India are financed, so lower rates help automakers. With household debt rising, lower rates reduce interest costs and boost disposable income, benefiting consumer discretionary stocks.”
On the banking side, he said, “Many mortgages are repo-linked, so the benefit reaches borrowers quickly. But banks may struggle to lower deposit rates due to strong retail and CASA competition, potentially squeezing net interest margins.”