NEW DELHI: Indian equities surged sharply after the Reserve Bank of India (RBI) delivered a larger-than-expected 50 basis points repo rate cut, reducing it to 5.5% in today's Monetary Policy Committee (MPC) meeting. The move, led by Governor Sanjay Malhotra, exceeded market expectations of a modest 25 basis points cut, thus fueling a broad-based rally.
The BSE Sensex zoomed by about 800 points to trade above 82,200 level while the NSE Nifty surge more than 250 points to trade around 25,000 level as of 12.15 pm.
Stocks in the rate-sensitive sectors like realty, banking, NFBC and auto counters recorded sharp buying. Shares of real estate firms such as DLF, Prestige Estate and Godrej Properties rose between 5-6% each while auto stocks such as Maruti Suzuki, Ashok Leyland and Hero MotoCorp were up between 2% and 3%. Shares of banking heavyweights such as HDFC Bank and SBI advanced up to 2%.
Adding to the bullish sentiment, the RBI's shift from an accommodative to a neutral policy stance while maintaining its real GDP growth forecast signaled confidence in economic stability, said experts. The street also cheered central bank’s decision to slash the Cash Reserve Ratio (CRR) by 100 bps (from 4% to 3%), a move expected to inject & 2.5 lakh crore into the banking system.
Akhil Puri, Partner, Financial Advisory at Forvis Mazars in India, said that a 100 bps drop in the CRP, a daring 50 bps repo rate cut conveys a clear commitment to fostering growth. Even in the face of ongoing global uncertainty, steps should be enough to maintain the Indian lending ecosystem’s lubrication.
“Interest rate-sensitive sectors like housing, auto, and real estate, are poised to gain from the improved affordability and sentiment. Consumer durables and discretionary segments may seem a boost, especially in urban markets. While financial services could face short-term margin pressures, stronger credit offtake and improved asset quality should support medium-term gains. Infrastructure and capital goods may seem a revival in private capex if transmission remain smooth,” added Puri.
Sujan Hajra, Chief Economist & Executive Director at Anand Rathi Group said that the RBI’s 50 bps policy rate cut, coupled with a 100 bps reduction in the cash reserve ratio (CRR), exceeded their expectations and the market consensus.
“With the RBI lowering its inflation projection by 30 bps to 3.7%, the real policy rate now stands comfortably above the central bank’s preferred zone of 100-150 bps. Against this backdrop, we expect the RBI to pause for the next couple of meetings, monitoring both inflation trends and the pace of policy transmission. Further rate cuts—possibly in the range of 25-50 bps—may be on the cards in 2025 if conditions remain supportive.”
“Overall, the policy decision is constructive for both equity and debt markets. In equities, interest-sensitive sectors are poised to benefit. While lower rates and policy transmission could have weighed on bank net interest margins in the near term, the sizeable CRR cut provides a significant offset, making this a particularly positive move for banks,” added Hajra.
Divam Sharma - Founder & Fund Manager at Green Portfolio PMS said that although a 25bps rate cut was already priced in by the markets, a 50bps cut comes as a surprise.
“This move is likely to enhance liquidity in the system, making borrowing cheaper and encouraging companies to pursue capital expenditure. Such investment could benefit the economy in the long term, particularly in an environment where trade wars and geopolitical realignments are becoming more pronounced than pandemic-related disruptions. The additional 100bps cut in CRR is also a positive step, as it encourages banks to lend more freely. With FPI inflows slowing down, this infusion of liquidity is a timely and welcome move,” added Sharma.