Rate-sensitive stocks down as RBI pushes for transmission of rate cuts2 min read . Updated: 07 Apr 2015, 01:52 PM IST
While the S&P BSE Bankex Index fell 1% to 2,1140.01 points, the Auto Index shed 0.6% to 19,512.35 points
Mumbai: Interest rate-sensitive stocks, including banks, automobile and realty companies, fell on Tuesday after the Reserve Bank of India (RBI) left interest rates unchanged and pushed banks to pass on the interest rate cuts announced so far.
The central bank retained the repo rate, or the rate at which it lends to banks, at 7.50% and the mandatory cash reserves banks must hold with it at 4%. Banks were pushing for a cut in the cash reserve ratio (CRR).
The RBI has already reduced rates by 50 basis points (bps) so far this year but none of the large banks have cut their lending rates in response. One basis point is 0.01%.
“Transmission of policy rates to lending rates has not taken place so far despite weak credit off take and the front loading of two rate cuts," noted the RBI in its policy.
The RBI also said that it would encourage banks to move towards computing changes in their base lending rate based on the change in their marginal cost of funding. So far banks use the average cost of funding as a benchmark and have argued that the average cost of funding has not changed, which in turn has prevented them from cutting rates.
“Their (banks) marginal cost of funding has fallen. The notion that it hasn’t fallen is nonsense," said RBI governor Raghuram Rajan in the post policy press conference.
Among banking shares, ICICI Bank Ltd fell 1.7% to ₹ 315.95; Axis Bank Ltd declined 1.6% to ₹ 559.45; Indusind Bank Ltd shed 1.4% to ₹ 903.30; Kotak Mahindra Bank Ltd fell 1.2% to ₹ 1,382; State Bank of India fell 1.2% to ₹ 271.50; and Canara Bank fell 0.7% to ₹ 382.20. The S&P BSE Bankex Index fell 1% to 2,1140.01 points.
Bond prices also fell post the policy and the benchmark 10-year bond yield rose to 7.774% compared with its Monday’s close of 7.723%, as the RBI governor indicated that future policy actions would be dependent on transmission of rate cuts and developments on the inflation front, especially food inflation.
Bond yields and prices move in opposite directions.
In the auto sector, Tata Motors Ltd fell 2% to ₹ 556.50; Hero MotoCorp Ltd shed 1.5% to ₹ 2,632.70; and Maruti Suzuki India Ltd declined 0.9% to ₹ 3,595. The S&P BSE Auto Index shed 0.6% to 19,512.35 points.
In the realty sector, Anant Raj Ltd fell 3% to ₹ 41.30; DLF Ltd declined 3% to ₹ 162.45; Indiabulls Real Estate Ltd shed 2.8% to ₹ 70.40; Prestige Estate Ltd fell 2.6% to ₹ 281.65; Unitech Ltd fell 2.6% to ₹ 17.70; Sobha Ltd declined 2.4% to ₹ 397.75; Omaxe Ltd slid 1.9% to ₹ 134.50; and Godrej Properties Ltd fell 1.6% to ₹ 267.45. BSE Realty Index fell 2% to 1,765.73 points.