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NEW DELHI: Rate sensitive stocks gained on Wednesday after the Reserve Bank of India (RBI) hiked repo rate – the rate at which it loans money to banks — by 50 basis points to 4.90 per cent in order to tackle elevated inflation.

Most bank stocks, which are among the most sensitive stocks with respect to policy rate change, traded with gains, albeit marginal.

“Overall the policy is in the expectation of the market, 50bps rate hike is already priced in the market now the market focus will be on the Fed rate hike. It is positive for sectors like BFSI and negative for sectors like real estate,” said Yash Gupta- Equity Research Analyst, Angel One.

Nifty Bank advanced 0.14 per cent after the RBI’s action.

SBI was the biggest gainer, rising about 1 per cent. It was followed by up to 1 per cent gains in

, PNB, , , and The . , and traded with marginal cuts.

In recent times, bank stock performance has been quite volatile. “Rising inflation, risk of a sharper policy rate hike going beyond the consensus 120-125bp and a resultant slowdown in discretionary consumption continue to mar investor sentiment,” said Nilanjan Karfa of Nomura India.

“However, we derive comfort from the 4Q earnings season which has been reasonably good barring higher operating costs across the board, although a falling credit cost trend remains supportive. Banks’ valuations compare rather cheap versus the broader market, in light of loan growth holding up better than expected, NIMs supported by rising policy rates and falling credit costs,” he added.

Analysts have noted that bank lending spreads have moderated for both private sector and state-owned banks. Lending spreads on new loans are now sharply lower compared with outstanding loans with the gap widening to 90bps.

Real estate sector, whose fortunes are also linked to the interest rate, were also trading with gains. Nifty Realty was up 0.72 per cent during the day led by up to 3 per cent gains in Lodha Developers,

, , DLF, Sobha and .

“The rate hike will push up home loan interest rates, which had already begun creeping upward after the surprise monetary policy announcement last month. Interest rates will remain lower than during the global financial crisis of 2008, when they went as high as 12 per cent and above. Nevertheless, the current hike will reflect in residential sales volumes in the months to come, more so in the affordable and mid-segments,” said Anuj Puri, Chairman – Anarock.

“The silver lining is that the Indian housing market is still largely end-user driven, so there is no investor mindset seeking the lowest possible entry point. Genuine demand comes from an underlying aspiration for homeownership.”

Auto stocks, which also depend on cheap money to drive their sales, were mixed. Hero Moto, Bosch, MRF and

were gainers while , , and M&M were trading with cuts. Nifty Auto was flat.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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