In a surprise move, the Reserve Bank of India (RBI) announced a 50-basis point reduction in the repo rate and a 100-basis point cut in the cash reserve ratio (CRR) on Friday. This shift, coupled with a change in the RBI’s policy stance from “accommodative” to “neutral,” sparked a surge in market activity, particularly in rate-sensitive sectors like banking, automobiles, and real estate.

Following the announcement, the Bank Nifty hit a record high of 56,515, marking a 1.3% rise, driven by solid gains in major banking stocks. IDFC First Bank led the charge with a 5% jump, while other key players such as Axis Bank (up 2.6%), Kotak Mahindra Bank (up 1.8%), and HDFC Bank (up 1.5%) saw significant boosts. Public sector banks, including PNB, Bank of Baroda, and IndusInd Bank, also rose by over 1%.

The financial services sector saw notable gains, with HDFC AMC climbing more than 5%. Bajaj Finance, Shriram Finance, SBI Card, and Cholamandalam Finance saw gains ranging from 3% to 4%. According to Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, the larger-than-expected rate cut is positive for growth, though the shift to a neutral stance suggests that more cuts are unlikely unless the economic situation demands it. He pointed out that while the cut may put pressure on banks’ margins, expected credit growth should help mitigate this impact.

Meanwhile, the Nifty Realty index surged nearly 3%, led by Godrej Properties, which rallied 5%. Other real estate companies such as DLF (up 4.4%) and Prestige Estates saw increases between 1% and 3%. Anuj Puri, Chairman of ANAROCK Group, highlighted that the CRR cut would enhance liquidity in the banking system, providing more funding for developers and accelerating project timelines. This move could also lower home loan interest rates, which would boost sentiment in the affordable and mid-income housing sectors. However, he cautioned that global trade tensions and tariffs imposed by the U.S. could raise input costs, potentially impacting luxury and commercial real estate.

The Nifty Auto index also saw positive movement, climbing 1.15%, fueled by strong performances from Ashok Leyland, Hero MotoCorp, and Maruti Suzuki, which saw gains of up to 3.3%. This marks the RBI’s third consecutive rate cut in 2025, underscoring the central bank’s continued focus on supporting economic growth while managing inflationary pressures.

Overall, the RBI’s decision brings both opportunities and challenges. The immediate boost to liquidity and sector-specific growth is encouraging, but careful monitoring will be needed to assess long-term impacts on market dynamics and inflation. As the economy continues to adapt to these changes, the focus will likely remain on balancing growth with inflation control.