New Delhi | Most of interest rate sensitive stocks from bank, realty and auto space fell on Thursday post the RBI monetary policy's unexpected announcement of reducing cash in the banking system.
The Reserve Bank of India (RBI) on Thursday left its key interest rates unchanged for a third straight meeting but signalled tighter policy if food prices drive inflation higher.
The monetary policy committee, which has three members from the central bank and a similar number of external members, held the benchmark repurchase rate (repo) at 6.50 per cent in a unanimous decision.
It retained the stance on "withdrawal of accommodation" but Governor Shaktikanta Das sounded hawkish when he highlighted that headline inflation needs to subside sustainably below 4 per cent and any surge in the inflation print, if continued for a longer period, may necessitate fresh action.
From the banking pack, AU Small Finance Bank fell by 2.15 per cent, Kotak Mahindra Bank declined 1.63 per cent, Canara Bank (1.40 per cent), Axis
Bank (1.12 per cent), Bank of Baroda (1.11 per cent), ICICI Bank (0.86 per cent), HDFC Bank (0.84 per cent), Federal Bank (0.37 per cent) and State Bank of India (0.03 per cent).
The BSE bank index declined by 0.81 per cent to settle at 49,973.30.
The hawkish stance was also reinforced by the unexpected announcement of reducing the cash in the banking system by raising the incremental cash reserve ratio (ICRR) to 10 per cent on the incremental NDTL (net demand and time liabilities) over the last 3 months. This will help in absorbing a large part of the excess liquidity created through the return of the Rs 2,000 notes and the large dividend to the government from RBI.
The move is expected to suck out about Rs 1 lakh crore from the banking system, he said, adding that this liquidity tightening measure will not impact the credit needs of productive sectors.
"The stock market was taken by surprise by RBI's action to remove excess liquidity from the system, due to the influx of Rs 2000 banknotes, among other factors," Amar Ambani, Group President & Head - Institutional Equities at YES Securities (India) Limited, said.
Among realty counters, Prestige Estates Projects tanked by 5.24 per cent, Macrotech Developers declined by 2.44 per cent, Indiabulls Real Estate (1.43 per cent), The Phoenix Mills (1.11 per cent) and Sobha Limited (0.54 per cent).
The BSE realty index fell by 0.25 per cent to settle at 4,266.96.
"The job on inflation is still not done," Das said. "Inflationary risks persist amidst volatile international food and energy prices, lingering geopolitical tensions and weather-related uncertainties." The RBI raised its inflation forecast for the current financial year ending March 2024 to 5.4 per cent from 5.1 per cent earlier, citing pressures from food prices.
"RBI kept the interest rate unchanged but threw in a twist by asking banks to maintain an incremental cash reserve ratio (ICRR) of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023.
"Another major reason for the markets to react negatively was that the inflation forecast for FY23-24 was increased from 5.1 per cent to 5.4 per cent. The increased inflationary expectations have led to hardening of bond yields and pushed ahead the chances of rate cut any time soon," Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, said.
From the auto space, Samvardhana Motherson International declined by 2.77 per cent, Apollo Tyres dipped 1.65 per cent, Hero MotoCorp (0.75 per cent), Tata Motors (0.75 per cent), Bosch (0.71 per cent), Maruti (0.70 per cent), Ashok Leyland (0.67 per cent), Bajaj Auto (0.58 per cent) and MRF (0.02 per cent).
The BSE auto index dipped 0.19 per cent to settle at 35,299.87.
The 30-share BSE Sensex fell 307.63 points or 0.47 per cent to settle at 65,688.18. During the day, it tanked 486.67 points or 0.73 per cent to 65,509.14.
"While RBI's status quo on interest rate didn't come as a surprise, the MPC's cautious tone and no signal of any rate cut by this year-end hurt the market sentiment. Inflation continues to be the key concern area and the RBI remaining watchful of the developments in key global economies indicates that investors' appetite for equities will be measured in the near to medium term.
"Also, investors kept a low profile ahead of the US inflation data to be released later today," Shrikant Chouhan, Head of Research (Retail) at Kotak Securities Ltd, said.