Are the NBFCs rejoicing a Possible RBI Rate Cut?

As the market commenced this morning the financial sector was seen to draw a lot of attention. At 9.30 AM, the Financial Services- NBFC was up by 1.35 per cent.

This surge was seen to be a result of the expected Repo rate cut by the RBI in its next meet which is scheduled on 7th December, tomorrow.

Why is the Market Expecting a Rate Cut?

After the massive turmoil in the economy due to Modi Government’s bold move ‘Demonetization’, the experts are highly positive of a minimum of 25 bps cut in the interest rate. According to them this will help in boosting the financial condition of the country.

Earlier, the banks were in a complaining mode that they do not possess enough fund to finance the startups, SMEs and corporate and the companies who wanted to borrow funds were not content about the cost of borrowing.

Demonetization should ease this issue as about Rs 12 lakh crores have already been deposited in the banking system (unofficial speculative figure). So now the banks are in better position to lend money at a better cost of borrowing.

What to Expect from the RBI Meet?

The six-member Monetary Policy Committee (MPC) will begin its deliberations today (6th December 2016) amid widespread expectations of at least 0.25 per cent cut in policy rate to cushion the impact of demonetization. This would be the second meeting of the MPC headed by RBI Governor Urjit Patel after the first that happened in October, when it had cut the repo rate or short term lending rate by 0.25 per cent to 6.25 per cent. Some also believe that RBI might cut the rate as much as 50 bps to promote further growth.

RBI has reduced repo rate by 1.75 per cent since January of 2015. This will be the first monetary policy review after demonetization of old Rs 500 and Rs 1,000 currency notes, following which banks witnessed a heavy surge in deposits.

Market Reaction

• Bank Nifty share price is in the positive zone though the rise is very low. At 1.40 PM it is trading at 18,510.00, up by 0.21 per cent.
• NBFCs also rejoiced the expected rate cut.
• SREI Infra share price rose more than 4 per cent and made an intraday high of Rs 83.50.
• Can Fin Homes share price also surged more than 4 per cent. At 1.45 PM the share is trading at Rs 1,677.35 apiece on NSE, up by 2.12 per cent.
• PFS share price is also trading is the green side of the market (up by 1.03 per cent).

A day’s wait will only tell us how much rate cut we will see.

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