RBI rate hike impact: Bank, NBFC shares rebound; Auto, realty trade weak

Shares of interest rate-sensitive sectors like financials including banks, non-banking financial companies (NBFCs) and housing finance companies, automobiles, and real estate, traded mixed on the National Stock Exchange (NSE) in Wednesday’s intra-day deals after the Reserve Bank of India's (RBI's) Monetary Policy Committee (MPC) unanimously hiked the repo rate by 25 basis points to 5.5 per cent from 5.25 per cent.
At 10:31 AM, the Nifty Bank, Nifty Private Bank, Nifty PSU Bank and Nifty Financial Services index were trading up to 1 per cent higher, as compared to a 0.38 per cent decline in the Nifty 50. Earlier in the day, financial-related indices were down up to 1 per cent each amid tepid global cues.

On the other hand post policy decision, the Nifty Auto and Nifty Realty were down 1 per cent and 0.24 per cent, respectively. Bajaj Auto, Tube Investment of India, Bharat Forge, Hero MotoCorp and Mahindra & Mahindra from the Nifty Auto index were trading lower in the range of 1 per cent to 2 per cent.
In the realty space, Brigade Enterprises, Prestige Estates Projects, Godrej Properties, DLF and Oberoi Realty were down 1 per cent each. Meanwhile, from the Nifty Bank index, Kotak Mahindra Bank, Union Bank of India, Canara Bank, Punjab National Bank, Federal Bank and ICICI Bank gained up to 2 per cent.

At its policy meeting, held between October 5 and October 7, the committee changed the stance from 'neutral' to 'calibrated tightening'. RBI Governor Sanjay Malhotra said the committee believed that, under the prevailing conditions, a rate cut was unlikely in the near term.
This meant that the RBI’s next policy move would either be a rate hike or a pause, depending on how economic conditions and the outlook evolved. Persistent West-Asia conflict has forced energy prices to stay elevated for long. Many central banks, including the US’s FOMC have kick-started the rate hike cycle to tame inflationary pressure.

Global yields have surged to multi-decadal highs as markets have priced in aggressive rate hikes. "Domestically, hawkish monetary policy minutes published in August, robust Q1FY27 GDP growth and then higher than expected core inflation for August have also increased chances of an earlier rate hike.
The important thing to note is that the bond market is expecting a total of 75-100bps rate hike in the current cycle," said the brokerage firm. “The RBI’s decision to raise the policy repo rate by 25 basis points to 5.5 per cent and shift its stance from neutral to calibrated tightening signals a shift towards a tightening cycle.

It reflects a measured response to emerging inflationary pressures amid resilient growth. The change in stance also indicates that the central bank remains watchful of evolving domestic and global risks, particularly movements in crude oil prices and their potential impact on inflation,” said Arun Poddar, CEO, Choice International.
“While the rate hike could result in some near-term tightening in financial conditions, India’s underlying growth fundamentals remain resilient. For equity markets, the focus will now be on the trajectory of inflation, liquidity and the evolving interest-rate environment.

A calibrated and data-dependent approach by the RBI will be important in containing inflationary pressures while supporting sustainable economic growth,” added Arun Poddar. "The real message from today’s MPC is not the 25 bps hike, but the RBI’s willingness to change its reaction function.
Moving to calibrated tightening suggests the RBI is no longer comfortable treating inflation as merely a transient oil shock. For equity markets, this marks a subtle but important shift: the easy valuation tailwind from lower rates is beginning to fade, and earnings will increasingly have to justify valuations.

In such an environment, I would expect the market to reward genuine earnings compounding and pricing power rather than broad-based liquidity-driven expansion," said Rishabh Nahar, Partner and Fund Manager at Qode Advisors. “The RBI’s decision to raise the repo rate by 25 bps is a clear response to the evolving inflation and global rate environment.
While this will raise the cost of capital at the margin, the larger implication for real estate is likely to be greater selectivity in investment and development decisions rather than a broad-based slowdown. Projects with sound demand fundamentals, credible execution and a clear long-term proposition will continue to attract capital,” said Abhishek Singhania, Chairman & Managing Director, JK Urbanscapes.

“For hospitality and mixed-use developments, particularly in emerging markets, the focus will increasingly be on the strength of the underlying destination and the quality of the asset, rather than simply on the availability of inexpensive capital. We see this as a phase that will reward disciplined development and projects built on strong fundamentals,” Singhania added.
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