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Industry experts welcome RBI rate-cut, all eyes on Budget 2019

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The RBI's Monetary Policy Committee meeting has been underway since June 4, and the decision has been made. For the third time in a row now, the RBI has cut rates by 25 basis points. This was widely expected, given the slowing economic growth along with rising global uncertainty. The MPC has also decided to change their stance from neutral to accommodative while stating that the RBI expects the government to remain broadly fiscal-prudent.

Amit Gupta, Co-Founder and CEO at TradingBells, says, "The RBI has announced a rate-cut of 25 basis points fuelled by a stable government, sharp decline in crude oil prices and a slowdown in the economy. The RBI changed its stance to accommodative, and a possibility of further rate-cuts this year remains open (we can expect a further rate cut of 50 to 75 basis points in 2019)."

"Real estate, NBFC, Banking, and Auto sectors would be the key beneficiaries of this rate cut where a temporary uptick can be seen in many stocks but quality stocks will continue to outperform," he added.

Shishir Baijal, Chairman & Managing Director – Knight Frank India, stated that the policy rate cut was likely to provide respite to the real estate sector.

"The first rate-cut in the newly-elected government’s regime is certainly a welcome step, especially for the real estate sector. The benefit of lower policy rate in terms of better credit cost as well as higher liquidity will hopefully be transmitted further by banks to NBFCs as well as home buyers," he said.

Baijal goes on to say, "The change in policy stance from neutral to accommodative is a welcome shift as it lays ground for further rate cuts. The cash-crunched NBFCs will definitely benefit from inflow of capital which will in turn benefit developers as well as home-buyers. NBFCs have been facing a liquidity crisis and this has negatively impacted their loans to real estate, including construction finance. Besides capital infusion into this important financier segment, this rate cut will also improve the home-buyers affordability and stimulate housing demand at this critical juncture.”

Romesh Tiwari, Head of Research – CapitalAim says, "25 basis point cut is in line with our minimum expectation and was already discounted in the market. The downward revision of GDP growth reflects concern over slowdown and supports shifting of RBI stance to accommodating policy. We expect banking shares to remain strong in the midterm while NBFCs may further correct before consolidating."

"Largely market will not be driven by this news. Current valuations do not justify Nifty and Sensex and are due for a correction soon. Now all the eyes will be on the budget session which may bring some big measures for revitalizing the economy. Short term target for Nifty is 11,880 and breaking below that may take the Nifty 11,660 levels in the medium term," he said.

Naveen Kulkarni, Head of Research, Reliance Securities says, "While the rate cut of 25 basis points was in line with our expectation, concerns over growth and challenges regarding liquidity continue to linger. The market is not necessarily cheering the rate cut as it had already factored in and something more was expected."

"RBI reduced repo rate by 25 bps as expected. The change in stance to ‘accommodative’ was a bit of a surprise. Debt markets will take this as a significant positive move though most of the rate cut cycle is probably over. The tone of the RBI policy was dovish and highlights the concerns on growth. We maintain our call for another 25 bps rate cut in August factoring in the benign inflation trajectory and the growing concerns on growth. However, transmission of the rate cuts will be key and the RBI should aim to maintain the liquidity, at least, at neutral over the next few months," said Suvodeep Rakshit, Sr. Economist, Kotak Institutional Equities.

Arvind Chari, Head –Fixed Income & Alternatives , Quantum Advisors Pvt Ltd said, "The Repo Rate cut of 25 bps was as expected. That it was unanimous, in a 6-0 decision is noteworthy. What is of most significance through for the bond markets is the change in stance to accommodative. This is a clear indication that the RBI is deeply concerned about growth and is prepared to use interest rates and liquidity to boost demand."

He also says, "Bond yields may have further room to drop as the markets will except further rate cuts especially another 25 bps in August to take the Repo rate to 5.5%. 10 year bond government bond yield at around 6.9%, is still attractively valued as more rate cuts gets priced in. We expect another rate cut in August but will caution against too much exuberance."

The GDP target has been lowered for financial year 2019-20 from 7.2 percent to 7 percent. The RBI also noted in its policy statement that consumer inflation for the first half has been pegged at 3-3.1 percent.

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