RBI MPC Meeting 2025: Mixed Market Response as Repo Rate Cut Impacts Rate-Sensitive Sectors

On Friday, February 7, sectors sensitive to interest rate changes exhibited varied reactions following the Reserve Bank of India’s (RBI) decision to reduce the repo rate by 25 basis points, bringing it down from 6.5% to 6.25%. This marked the first rate cut in nearly five years, with the last reduction occurring in May 2020 when the repo rate was lowered to 4%. Additionally, the Monetary Policy Committee (MPC) decided to retain its 'neutral' stance.

This policy review was the first under the leadership of RBI Governor Sanjay Malhotra, who assumed office in mid-December. The central bank maintained its Consumer Price Index (CPI)-based inflation projection at 4.8% for FY25 while forecasting a GDP growth rate of 6.7% for the same period.

Market Volatility Post-Announcement

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Following the policy announcement, Indian stock markets experienced fluctuations. The BSE Sensex dropped by 328 points (0.4%), reaching an intraday low of 77,730.37, while the Nifty 50 fell by 110 points (0.4%) to 23,493.60. Broader indices underperformed, with midcap stocks declining by 0.6% and smallcap stocks dropping by 1%.

Reaction of Rate-Sensitive Sectors

The RBI’s rate decision triggered sharp movements across interest rate-sensitive sectors. The Nifty Bank and Nifty Financial Services indices both declined by over 0.4%, while Nifty PSU Bank and Nifty Private Bank slipped by 0.8% and 0.4%, respectively. In contrast, the Nifty Auto sector posted a 0.6% gain, and Nifty Realty advanced by 1%.

Banking and Financial Stocks Face Pressure

Banking and financial stocks generally witnessed a downturn. Within the Nifty Bank index, major players including SBI, Bank of Baroda, Axis Bank, and ICICI Bank saw declines exceeding 1% each. AU Small Finance Bank, however, bucked the trend, rising by 2%.

Among PSU banks, Union Bank of India was the only stock in positive territory, whereas Maharashtra Bank, Punjab National Bank (PNB), and Bank of India recorded losses. In the financial services segment, PFC declined by over 1%, while HDFC AMC, ICICI Prudential, Chola Finance, LIC Housing Finance, and SBI Cards registered drops exceeding 0.5%. Meanwhile, Muthoot Finance and Shriram Finance posted gains of over 0.5% each.

Auto and Realty Sectors Outperform

The auto sector showed resilience, with Apollo Tyres leading the rally, surging nearly 3%. Ashok Leyland and Mahindra & Mahindra (M&M) followed with gains of over 1% each, while Bajaj Auto, Hero MotoCorp, Motherson, and Tata Motors added 0.5% each. On the downside, Balkrishna Industries slipped by 0.7%, and Bosch and MRF also ended in the red.

In the real estate sector, Lodha Group emerged as the top gainer, climbing over 2%, while Godrej Properties, Oberoi Realty, Phoenix Mills, and Sobha saw gains exceeding 1%. DLF and Raymond also posted increases of more than 0.5%. The only stock to decline in this sector was Brigade Enterprises.

Impact on the Housing Market

Commenting on the potential implications of the RBI’s 25-basis-point rate cut, Anuj Puri, Chairman of ANAROCK Group, stated that the move complements the recent tax benefits introduced in the Union Budget. He noted that the decision is likely to encourage homebuyers, particularly those eyeing affordable housing, as reduced home loan rates make purchasing more accessible—provided banks pass on the benefits.

Puri further highlighted that the housing market has been witnessing strong momentum, and lower interest rates could enhance positive consumer sentiment. Given that property prices have risen across the top seven cities over the past year, this adjustment is both timely and beneficial. Additionally, commercial real estate, particularly office spaces, could also gain from reduced borrowing costs, while lower rates may enhance the appeal of Real Estate Investment Trusts (REITs), attracting investors seeking stable returns in a declining interest rate environment.

Source: Mint