Market Cheers Following RBI Policy Outcome; Sensex & Nifty Jump, Midcap & Banking Stocks Take Lead

Indian stock markets rallied nearly 1% on Wednesday, October 9, as the Reserve Bank of India (RBI) signalled a potential easing of interest rates in the near future. The RBI's Monetary Policy Committee (MPC) kept the benchmark repo rate unchanged at 6.5% for the tenth consecutive meeting but altered its policy stance from "withdrawal of accommodation" to "neutral."

The policy decision was widely anticipated by market participants, who responded with enthusiasm, pushing key indices higher. The Sensex surged by 608 points, or 0.75%, to hit an intra-day high of 82,319, while the Nifty climbed by 204 points, or 0.8%, to reach a high of 25,234. Broader markets outperformed, with midcap and smallcap indices rallying by 1.5% each following the announcement.

The RBI's decision to maintain the repo rate at 6.5% was largely in line with market expectations. However, the more significant move was the change in policy stance, which all six members of the MPC supported. Five out of the six members voted to keep the repo rate steady.

This shift to a neutral policy outlook is seen as a signal that the central bank is preparing for a potential interest rate cut in the near term, possibly in December, should inflationary conditions allow. This possibility injected optimism into the market, with investors reacting positively, particularly in rate-sensitive sectors.

Sectoral Performance

Rate-sensitive sectors were the biggest beneficiaries of the RBI's policy shift. These sectors, which are closely linked to interest rate changes, saw strong buying interest, reflecting hopes of a potential rate cut down the line.

Nifty Realty emerged as the top gainer among sectoral indices, surging over 2%, driven by expectations that lower interest rates could spur demand in the real estate sector.

Nifty PSU Bank and Nifty Financial Services also advanced by 1.5% each, supported by gains in key banking and financial stocks.

Nifty Bank, Nifty Private Bank, and Nifty Auto posted gains of around 1% each as investors piled into rate-sensitive names, anticipating stronger growth in these sectors.

Banks and financial stocks were among the top performers. In the Nifty Bank index, Punjab National Bank led the pack, rising by over 2%, followed by State Bank of India (SBI) and Axis Bank, which also gained more than 2% each. Other major gainers included ICICI Bank, IndusInd Bank, and Bank of Baroda, which posted gains between 0.5% and 2%.

In the financial services space, Shriram Finance was the standout performer, rallying 4%, while HDFC AMC and Cholamandalam Finance both rose by over 3%. Bajaj Finance, Bajaj FinServ, HDFC Life, and SBI Cards also posted notable gains, with advances ranging from 1% to 3%.

The auto and real estate sectors also benefited from the RBI's policy stance. Exide Industries led the auto pack with gains of over 4%, followed by Bosch, Tata Motors, and Motherson Sumi, which each rose by more than 2%. TVS Motor Company, Balkrishna Industries, and Maruti Suzuki also saw intra-day gains of over 1%.

In the realty sector, Lodha and Prestige Estates emerged as top gainers, surging by more than 4% each, while Brigade Enterprises, Oberoi Realty, and Mahindra Lifespace all posted gains of over 1%.

With the festive season approaching and market sentiment remaining positive, rate-sensitive sectors such as banking, real estate, and auto are expected to continue their upward trajectory. The potential for a rate cut in December could further fuel growth in these sectors, adding momentum to the broader market.

The RBI's policy decision was influenced by its outlook on inflation and growth. On the inflation front, the RBI maintained its projection of 4.5% for FY25. Governor Das acknowledged the recent volatility in inflation, particularly in food and fuel prices, but expressed confidence that inflation would remain within the central bank's target range in the coming quarters.

On the growth side, the RBI maintained its real GDP growth projection for FY25 at 7.2%, underscoring its optimism about India's economic prospects. While the growth outlook for Q2 FY25 was moderated, the central bank raised its expectations for the latter half of FY25 and the first quarter of FY26. The real GDP growth rate for FY25 is expected to hold steady at 7.2%.