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RBI’s repo rate cut sparks hope

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Banks to cut interest rates on home loans

Last week, Monetary policy committee of RBI cut repo rate by 25 basis points from 6% to 5.75%. Repo rate is the rate at which RBI lends money to banks. A drop in repo rate allows banks to borrow as well as lend money at lower rates. RBI also changed monetary policy stance from neutral to accommodative. This indicates that if inflation persists within tolerable limits further rate cuts are in the offing.

Realty sector is sensitive to rate cuts. Interest rate cuts leads to lower home loan EMI’s, improve home buyers affordability and cut capital costs for corporates. A senior official of Assocham said that the move is a big boost for Affordable Housing segment and will encourage eligible new home borrowers to take advantage of the subsidies scheme under PMAY. Banks are expected to pass on the reduction by slashing their lending rates.

Affordable Housing smallcase consists of stocks from segments like housing finance companies focused on financing low and middle income segments, real estate developers constructing affordable houses and cement & building products companies. The smallcase has gained 6.04% over the previous month.

In related news according to data released by property consultant CBRE, sale of housing units in the top 7 cities increased by 13% to 33,000 units during Jan-March 2019 quarter. Supply of new housing units also increased to 33,000 units during the period from 25,700 units in the year-ago period. According to CBRE stable prices, policy reforms like RERA and GST has helped in revival of the market.

The Realty Tracker smallcase comprises real estate companies to allow investors to efficiently track and invest in the realty sector. The smallcase has generated 9.5% returns over the last 1 month.

Markets update

After hitting new closing highs on Monday last week, benchmark indices ended the week in red due to profit booking. Nifty closed at 11,870.7 down 0.44% and Sensex closed at 39,615.9 down 0.25% compared to the previous week.

Monetary policy committee of RBI cut repo rate by 25 basis points from 6% to 5.75%, last week. Repo rate is the rate at which RBI lends money to banks.

Nikkei Manufacturing PMI for May 2019 came in at 52.7 compared to 51.8, indicating pick up in manufacturing activity. Nikkei Services PMI was 50.2 in May compared to 51 the previous month, indicating weak expansion in the services activity.

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Abhishek Jadon

VP, Investment Products at Windmill Capital.

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