MASSIVE! RBI cuts repo rate by 35 bps - This is how Sensex, Nifty reacted; banking stocks soar, Yes Bank skyrockets

The Reserve Bank of India (RBI) governor Shaktikanta Das, has once again  surprised markets, investors, experts and the common man, by not bringing down the policy repo rate by the traditionally expected 25 basis points, but instead announced a whopping 35 basis points reduction! Now policy repo rate stands at 5.40% from previous 5.75%. RBI and MPC members announced the developments during presentation of third bi-monthly monetary policy for FY20 on Wednesday. The reaction of benchmark indices Sensex and Nifty was quite interesting to watch, as the 31-scrip index clocked its new intraday low of 36,815.47 just few minutes of announcements. Soon later, both Sensex and Nifty were trading in green, however, at a subdued note. But trading in banking stocks were a treat to watch. 

Just after when RBI announced another rate cut, the Sensex jumped to over 37,100-levels at 1149 hours, but within minutes it came down to 36,815.47 intraday low around 1200 hours. However, at around 1229 hours, the index was trading at 37,044.60 up by 67.75 points or 0.18%. On the other hand, the Nifty 50 continued its momentum below 11,000-mark, by trading at 10,953.85 gradually above 5.60 points or 0.05%. 

On Sensex, the banking stocks were top gainers with massive buying witnessed in private banks. The S&P BSE Bankex was trading at 31,844.80 higher by 150 points or 0.47%. The banking index also touched an intraday high of 31,892.11-level. On the index, Yes Bank saw most buying from investors, as it was trading at Rs 90.65 per piece above 6.15%. The bank was followed by IndusInd Bank at Rs 1,449.30 per piece up 2.33%, ICICI Bank at Rs 414.05 per piece up 0.89%, Kotak Mahindra Bank at Rs 1,493.55 per piece up 0.58%, Federal Bank at Rs 88.40 per piece up 0.28% and HDFC Bank at Rs 2,190 per piece mostly trading in green but muted level compared to previous trading price. 

On the other hand, stocks like Axis Bank, SBI, RBL Bank, Bank of Baroda, PNB, Bank of India, Union Bank of India and Canara Bank were in losers list. 

Similarly, the Nifty Bank also was trading at 28,093.55 up by 71.45 points or 0.25%. The index touched an intraday high of 28,175.55. 

In August 2019 policy, the RBI and MPC members voted to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 35 basis points (bps) from 5.75 per cent to 5.40 per cent with immediate effect. Consequently, the reverse repo rate under the LAF stands revised to 5.15 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent.

Also, the MPC decided to maintain the accommodative stance of monetary policy.

Mustafa Nadeem, CEO, Epic Research on RBI policy said, “This is a welcome move and was pretty much expected on the street. Amid global markets witnessing lower interest rate scenario and dovish policy stands, equities market taking a hit and negative-yielding bonds surging. This is an accommodative stance we believe which RBI did clearly mention in its previous meet. The recent stance of the Fed by reducing the reserve rates and officially labeling China as Currency manipulator amid rising trade war tariffs is what have might be the issue on the table. The monsoon is slowly picking up while inflation remains under control. The headroom space was there and RBI is filling it.”

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

All members of the MPC unanimously voted to reduce the policy repo rate and to maintain the accommodative stance of monetary policy.

Four members (Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Shri Bibhu Prasad Kanungo and Shri Shaktikanta Das) voted to reduce the policy repo rate by 35 basis points, while two members (Dr. Chetan Ghate and Dr. Pami Dua) voted to reduce the policy repo rate by 25 basis points.

For going forward RBI policy impact on markets, Nadeem said, “Markets in the short term may rejoice and see some recovery to upper levels of 11100 - 11200 as far as 10750 holds. But it is important to note that we are in a secondary trend which is bearish and the bulls at present have the least chance of turning the trend quickly. Going forward the pressure at higher levels may continue to maintain its bearish momentum It is now how global markets move and what are the cues there.  If 10750 is taken out on a closing basis we may see a trend continuation to much deeper levels of 10200 - 10300 but this move may be seen as a short term relief since the market is now dancing to the tunes of the global markets.”

The minutes of the MPC’s meeting will be published by August 21, 2019.