Shares of banks and automakers either maintained their gains or increased after the Reserve Bank of India raised the repo rate, which it lends to banks, by 50 basis points to 5.40 percent. To combat growing inflation, the central bank raised interest rates by 90 basis points in May and June of this year.
A rate increase of between 35 and 50 basis points has been factored in by the market.
“The decisions made by the monetary policy committee (MPC) have met our expectations. Frontloaded action was essential given the growing external sector imbalances and global uncertainty. By December 2022, we still anticipate a repo rate of 5.75 percent, according to Kotak Mahindra Bank chief economist Upasna Bhardwaj.
ICICI Bank increased by 1.5%, IDFC First Bank by 1.4%, SBI by 1%, and Axis Bank by 0.78 %. The Nifty Bank increased by 0.72%.
“We anticipate that after the initial reaction, markets will stabilizelaborlabor. Given our firm belief in a multi-year upcycle in the Indian economy, we remain optimistic about the banking industry overall and are constructive about the equities markets, according to Jaideep Arora, CEO of Sharekhan by BNP Paribas.
“We have witnessed system liquidity tighten since RBI started reducing surplus liquidity,” said Naveen Kulkarni, Chief Investment Officer of Axis Securities. “System credit growth increased to 14%. With credit growth beginning to pick up, we think the banks with a larger percentage of floating rates and a strong CASA-led deposit franchise should be well-positioned in this context of rising interest rates.
Selling in auto component producers Balkrishna Industries and Sona Comstar was a major factor in the slight decline of Nifty Auto. Trading was profitable for TVS Motor, M&M, Escorts, and Bharat Forge.
The interest rate-sensitive industry Nifty Realty had a 0.4% increase. Shares of Godrej Properties, Oberoi Realty, Sobha, DLF, and Macrotech Developers all increased by up to 1.5%.
“The increase of 50 basis points is undoubtedly excessive, and home loan lending rates will now teeter even closer to the danger zone, “ANAROCK Group Chairman Anuj Puri remarked. “This double whammy goes along with the key raw material inflationary tendencies, such as cement, steel, labor, etc., which have recently caused an increase in housing prices. These elements used together will affect residential sales.”
According to Shishir Baijal, chairman and managing director of Knight Frank India, the affordability of potential house purchasers has decreased by about 11% as a result of the cumulative rate hike up to this point, assuming full transmission.
As a result, a buyer who could previously afford a home valued at Rs 1 crore now only afford one that is worth Rs 89 lakh. Real estate firms now have a responsibility to act. According to Baijal, “Developers are likely to implement mitigation measures to lessen the hit on homebuyer affordability.”
On August 5, Nifty Real Estate rose despite these worries. The greatest gainers were Lodha, Sobha, and Indiabulls Real Estate.
The Sensex was up 121.16 points, or 0.21 percent, and trading at 58,419.96. The Nifty was up 28.50 points, or 0.16 percent, at 17,410.50.