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 Governments 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 days wait will only tell us how much rate cut we will see.

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decision.
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Article Written by
Nabarupa Kanjilal