RBI Monetary Policy: Market Cheers Surprise Repo Rate Pause. Banking, Financial Stocks Rally

The Bank Nifty rose 104 points and was trading at 41,104, while the Nifty Financial Services rallied 90 points to 18,462  

Stock market rallied after in a surprising move the Reserve Bank of India (RBI) decided to pause the repo rate hike on Thursday. MPC unanimously decided to keep the policy repo rate unchanged at 6.5 per cent.

The two key equity benchmarks, Sensex and Nifty, on Thursday, opened flat in anticipation that the central bank will hike the repo rate again to contain inflation. However, after the RBI's announcement, the market started trading in green during intraday trade. 

At 1.00 PM, the BSE Sensex was trading at 59,940, rising 251 points. On the other hand, the NSE Nifty50 was trading at 17,630 up 73 points. The rally was led by the Banking and Financial stocks. The Nifty Bank rose 104 points and was trading at 41,104 and Nifty Financial Services rallied 90 points to 18,462.  

Bajaj Twins (Bajaj Finance and Bajaj Finserv) jumped more them 2.3 per cent. IndusInd Bank also rose 1.94 per cent during the intraday trade. SBI, HDFC, and HDFC Bank were also trading in green. 

In his statement, RBI Governor Shaktikanta Das also said that Monetary Policy Committee will not hesitate to take any action in the future. 

According to RBI, the Consumer Price Index (CPI) is expected to average 5.2 percent in FY24, which is a little improvement from the previous forecast of 5.3 percent. The GDP is expected to rise at a rate of 6.5 percent for FY24, which is somewhat higher than the earlier forecast of 6.4 percent, as the RBI also emphasised the economy's resilience.

Other than RBI's decision, the market rally for the fifth day straight is influenced by a number of factors. 

According to a report by MoneyControl, private sector banks have reported strong growth in credit and deposits during the fiscal fourth quarter, with some banks surpassing the industry average.  THDFC Bank, IndusInd Bank, Yes Bank, Federal Bank, and Bandhan Bank have all released provisional business numbers ahead of their financial results for the quarter that ended March 2023, the report noted. 

The report also noted analysts suggest that the recent buying is due to moderating valuations. According to Jefferies, the recent market correction has led to more reasonable valuations, with the price-to-earnings ratio for 1-year forward earnings currently standing at 17.2x. Moreover, 56 out of the Nifty100 stocks are now trading below their 10-year historical average, the report said. 

Additionally, certain financials, select auto companies, and pharmaceutical stocks are trading at a discount to their historical average, the report noted further. 

Improved PMI and current account deficit numbers have also helped improve market sentiments. According to data released on April 3, India's manufacturing sector maintained its growth momentum in March, with the S&P Global Purchasing Managers' Index (PMI) rising to 56.4 from February's 55.3. India's current account deficit fell more than expected to $18.2 billion – or 2.2 per cent of GDP – in October-December, according to the data released on March 31.