“Even as borrowing costs may go down a bit, concern on India’s fiscal deficit still remains an overhang on sentiment,” Viral Berawala, chief investment officer at Essel Finance Asset Management Ltd, told Bloomberg. “The positive seems to be for the short term.”

Bank Stocks Pop

Bank stocks were among those that were popping off on the rate cut decision, which helped support the financial sector heavy India ETFs. For example, SMIN includes a 24.5% tilt toward the financial sector and EPI includes a 23.0% position in financials.

“It is a positive step as this will help lower the borrowing cost. We expect banking and auto stocks to react positively to this development,” A. K. Prabhakar, head of research at IDBI Capital Market Services Ltd, said.

Looking ahead, the RBI’s interest rate decision will make liquidity cheaper, especially for banks focused on higher loan growth and asset purchase from non-bank finance companies. Sameer Kalra, president at Target Investing, argued that the sectors to benefit will include state-run and private banks. The easing will help support consumption demand as well.

For more information on India’s markets, visit our India category.

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