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How the Market Reacted to India’s Rate Cut

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Indian stock markets cheered the rate cut

In a surprise move, the Reserve Bank of India (or RBI) cut repurchase agreement rates by 50 basis points on Tuesday, September 29. After this rate cut, repo rates were at 6.75%, the lowest levels since March 2011. This was the fourth rate cut this year. At each previous policy meeting in January, February, and June, the central bank cut repo rates by 0.25% as a fall in commodity prices eased inflationary pressures. This move strengthened equity markets as well as currency.

Market experts and analysts were elated with the rate cut. They believed the move was timely and would provide a boost to the economy as well as financial markets.

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Markets cheered the announcement as the India-focused iShares MSCI India ETF (INDA) surged 1.51% on September 29. The Bank Nifty gained 0.73%. The Wisdom Tree India Earnings Fund (EPI) also rallied 1.53% and the WisdomTree Indian Rupee Strategy Fund (ICN) gained 0.15%.

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Rate-sensitive stocks rally

Stocks in rate-sensitive sectors such as banking, real estate, and autos gained after RBI’s announcement. Leading banks like the State Bank of India (SBIN), HDFC Bank (HDB), ICICI Bank (IBN), and Axis Bank (AXS) welcomed the move, as this would lead to increased demand for loans. Shares of State Bank of India, the nation’s largest lender, returned 0.29%. HDFC Bank surged by 1.14% and ICICI Bank surged by 0.20%. However, the Axis Bank lost 0.78%. The country’s largest home loan provider, HDFC, gained 2.97% after the announcement of expectations for a revival in loan demands.

Realty stocks also rejoiced after the rate cut announcement on hopes of a revival in housing demand. Shares of DLF, Housing Development and Infrastructure (HDIL), and Indiabulls Real Estate rallied 3.27%, 9.25%, and 3.99%, respectively.

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