Indian stocks recoup losses as banks gain after RBI rate hike

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A man talks on his mobile phone in front of a new brand identity for Nifty Indices inside the National Stock Exchange (NSE) building in Mumbai, India May 28, 2019. REUTERS/Francis Mascarenhas

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BENGALURU, June 8 (Reuters) – Indian stocks rallied on Wednesday after hitting a nearly two-week low to trade slightly higher as the central bank raised its key rate as expected, financial stocks and real estate leading the gains.

The Reserve Bank of India raised the repo rate by 50 basis points after an unexpected 40 basis point hike in May, and abandoned its “dovish” stance, bolstering expectations of further hikes and other forms of tightening in coming months to control widening price pressures. Read more

The RBI’s decision to raise the repo rate, as well as raise the inflation estimate, was in line with market expectations, said Suvodeep Rakshit, senior economist at Kotak Institutional Equities.

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While inflation looks set to stay high, mainly due to high global energy and food costs, the outlook for economic growth is starting to look bleak. Gross domestic product growth slowed to its weakest level in a year last quarter from a year ago, the third straight slowdown.

The NSE Nifty 50 index (.NSEI) rose 0.21% to 16,451.20, as of 0532 GMT, while the S&P BSE Sensex index (.BSESN) rose 0.22% to 55,227, 31. Both indices had fallen more than 0.70% after the central bank’s decision.

The rate-sensitive indices Nifty bank (.NSEBANK), finance (.NIFTYFIN) and public sector bank (.NIFTYPSU) rose between 1% and 2%.

Lenders Bajaj Finance (BJFN.NS), Bajaj Finserv (BJFS.NS) and State Bank of India (SBI.NS) were among the top movers in the Nifty 50, up 2% each.

The Nifty real estate index (.NIFTYREAL) jumped 2.6% after a three-day decline as the central bank allowed rural cooperative banks to lend to residential housing projects.

The RBI’s move will help improve much-needed liquidity in the sector, said Sharad Mittal, Director and Managing Director of Motilal Oswal Real Estate Funds.

“Now that mortgage rates are expected to rise, we may see a slight drop in demand in the near term, but the overall outlook for the sector remains strongly bullish in the long term,” Mittal said.

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Reporting by Rama Venkat in Bengaluru; Editing by Subhranshu Sahu

Our standards: The Thomson Reuters Trust Principles.

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