More money on the Street draws bulls to realty, auto, financials
Interest rate-sensitive sectors, such as banks, financials, property and automotives, surged after Friday's twin policy announcements on funding costs and
liquidity enhancement
, pushing the benchmark Nifty higher by more than 1% past the 25,000 mark.
The Nifty Bank index made a fresh high of 56,695 level on Friday, ending 1.5% higher. Nifty's Realty index was up 4.7% at close, the
Financial Services
index advanced 1.75%, and the Auto index closed 1.5% higher. The
Reserve Bank of India
(RBI) slashed the policy rate by half a percentage point - the most since March 2020 - and reduced the cash reserve ratio (CRR) to the Covid-era record low.
"The market has responded appropriately to the RBI's repo rate and CRR cuts, which could translate into longer-term gains if consumption also picks up," said Amit Khurana, head of equities at Dolat Capital Market. "Rate-sensitive sectors are gaining momentum, driven by short covering, but sustained growth depends on increased cash market participation."
The Nifty Bank and Financial Services indices are also seeing a change in trend on the technical charts.
"Bank Nifty witnessed a bullish breakout from a seven-week consolidation phase on Friday, marking fresh all-time highs. Finnifty has also seen a similar breakthrough," said Vipin Kumar, assistant vice president of derivatives and technical research at Globe Capital Market.
Kumar said Bank Nifty is poised to move towards the 57,500-57,800 range in the near term, with key support around 55,400. This implies about a 2.1% upside in the index from current levels.
A rate cut usually translates into lower lending rates for the banks, prompting citizens to borrow more at cheaper rates, either for investing or buying new assets like homes or vehicles. Due to the cut in CRR rates, NBFCs will also get easier access to bank funds, which may increase their lending activity.
Khurana said from a longer-term perspective, some of these sectors may be attractive to investors.
"Valuations for banks remain modest, with NBFCs favoured due to the CRR cut. Real estate may also benefit from improved sentiment, though auto demand remains weak and is unlikely to be significantly impacted by these measures," he said.
In the shorter term, Kumar said that the auto index has formed a fresh buying pivot with renewed buying interest and he will reassess the index near the 24,150 level.
"In the real estate sector, we recommend buying the index heavyweight DLF on dips, while other stocks within the space can be considered at current levels," he said.
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