What the RBI status quo means for equity markets

Barring auto stocks, shares of rate-sensitive sectors such as banking, financial services and and real estate firmed their gains after the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) decided on Friday to keep the repo rate unchanged at 6.5% for the fifth consecutive time.

While sectoral indices including the Nifty Bank, Nifty Financial Services, and the realty index were trading in the green, the Nifty Auto index was trading in the red after the announcement.

Among the individual stocks, HDFC Bank, IDFC First Bank, ICICI Bank, Bank of Baroda, Axis Bank and Kotak Mahindra Bank were trading in the range of 0.14-1% on December 8.

The realty companies including Prestige Estates Projects, Macrotech Developers (Lodha), DLF and Sobha rose 1-4%.

From the auto pack, TVS Motor Company, Ashok Leyland, Mahindra & Mahindra (M&M) and Hero MotoCorp were down nearly 1% on the National Stock Exchange (NSE).

"We are also very positive on the entire auto space per se, within which Maruti has been doing very well in the last couple of quarters. We also have a buy rating with a target price of ₹12,300. So that gives a good decent upside from current levels," said Siddhartha Khemka of Motilal Oswal.

The benchmark index Nifty50 scaled a new high of 21,000-mark for the first time, 61 sessions after it first hit the 20,000 mark on September 11, 2023.

Santosh Meena, Head of Research at Swastika Investmart said the market continued its bullish momentum, with the Nifty reaching a significant milestone of 21,000. "We believe this momentum will persist, potentially experiencing some consolidation along the way."

The banking and financial stocks are particularly well-positioned to outperform, given their current valuations and fundamental strengths, Meena said, adding, "Nifty can head towards 21275/21500 and Bank Nifty can test 48800/50000 in the medium term."

Avinash Gorakshkar of Profitmart Securities advised investors to look at Mahindra & Mahindra (M&M) and Tata Motors shares in the auto sector and in banking, one can look at Bank of Baroda, Punjab National Bank and ICICI Bank shares.

Anil Rego, Founder and Fund Manager at Right Horizons believe markets in the near term will now be driven by the upcoming earnings season and the 2024 Lok Sabha elections.

"Markets have touched new highs, especially with earnings for the H1FY24 coming healthy supporting the trajectory. Investors are bullish as they are favouring rate cuts in 2024 which will unanimously boost the equity markets. The banking sector is the most sensitive to changes in rate cycles and has been a major reason for incremental earnings in FY23 and in H1 of FY24 benefitting from the hikes and credit growth being robust and persistent," Rego said.