RBI hikes repo rate: Auto, real estate stocks dip, banks in green, here’s how rate-sensitive stocks are faring

Rate-sensitive stocks like auto, real estate, and other stocks were trading in the red on Wednesday, October 7, as the Reserve Bank of India’s (RBI) Monetary Policy Committee unanimously decided to hike the repo rate for the first time in three years since February 2023.

Meanwhile, the banking stocks were seen in green.

Governor Malhotra highlighted that the Indian economy has been strong and economic activity momentum remained broad-based. He said that the economy is expected to remain resilient and revised the real gross domestic product (GDP) forecast to 7.1%.

“For credit markets, the impact will extend beyond the immediate increase in borrowing costs. A higher-rate environment places greater emphasis on the quality of cash flows, debt-servicing capacity and the strength of the underlying security. For private credit, this reinforces the importance of disciplined underwriting and structuring, with greater selectivity around businesses that have sound fundamentals and clear visibility on repayment,” said Sandeep Agarwal, CEO & CIO, Modulus Alternatives.

Banking stocks

Bank stocks were in green after the repo rate hike, as higher interest rates can allow banks to charge more on loans, potentially supporting their interest income. If lending rates rise faster than the rates paid on deposits, banks can benefit from a wider net interest margin (NIM), which can improve profitability.

The NIFTY Bank index, comprising 14 stocks, rose after the rate increase announcement. Meanwhile, the NIFTY PSU Bank index traded higher, rising 0.81%, whereas the NIFTY Private Bank index was also seen in green.

Kotak Mahindra Bank (1.68%), Union Bank of India (1.37%), Federal Bank (1.31%), Canara Bank (1.04%) and Punjab National Bank (0.8%) were the top contributors on the NIFTY Bank index.

The NIFTY PSU Bank index climbed 1.08% to its intraday high of 8,084.10 level, while the NIFTY Private Bank gauge advanced 0.44% to its day’s high of 27,213.55 level.

Auto stocks

Following the rate decision, the NIFTY Auto index fell nearly 2% to touch an intraday high of 25,105.40. All the 15 stocks on the index were trading lower.

Ashok Leyland (-2.75%), Bajaj Auto (-2.54%), Tube Investments of India (-2.27%), Bharat Forge (-1.88%) and Hyundai Motor India (-1.83%) were the top laggards on the index.

Financial sector stocks

The NIFTY Financial Services index was down to an intraday low of 24,755.55, with 13 out of 20 constituents trading in red.

Shriram Finance (-1.77%), MFSL (-1.59%), Cholamandalam Investment and Finance Company (-1.57%), SBI Life Insurance (-1.39%) and BSE (-1.28%) were the main losers.

“For lenders, including fintechs and NBFCs, the immediate impact will be a modest rise in the cost of funds. Borrowers with repo-linked loans may see changes in their EMIs or loan tenures, while deposit rates could also rise as banks adjust to the new rate environment. The focus for lenders will be on managing costs while keeping lending rates competitive and ensuring that consumers and small businesses continue to have access to credit,” said Puja Abhishek Singh, CEO, Manipal Fintech.

Real estate stocks

The real estate stocks were also seen lower, with the NIFTY Realty index slipping almost 1.1% to touch an intraday high of 828.15 level. As many as 8 out of 10 constituents were trading lower.

Aditya Birla Real Estate (-1.59%), Brigade Enterprises (1.35%), Prestige Estates Projects (-1.14%), Godrej Properties (-0.77%) and DLF (-0.62%) were the top losers.