Most economists expect the MPC to keep policy rates unchanged but its commentary would be a key thing to watch out for
The Reserve Bank of India (RBI) on expected lines hikes rate by 25 bps to 6.5 percent. The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent.
Commenting on inflation, the RBI said that retail inflation, measured by the year-on-year change in the CPI, rose from 4.9 percent in May to 5 percent in June. Going forward, inflation is projected at 4.6 percent in Q2, 4.8 percent in H2 of 2018-19 and 5.0 percent in Q1.
Turning to the growth outlook, various indicators suggest that economic activity has continued to be strong. GDP growth projection for 2018-19 is retained, as in the June statement, at 7.4 percent, ranging 7.5-7.6 percent in H1 and 7.3-7.4 percent in H2, said the RBI note.
The MPC notes that domestic economic activity has continued to sustain momentum and the output gap has virtually closed. However, uncertainty around domestic inflation needs to be carefully monitored in the coming months.
The recent global developments raise some concerns, cautions MPC. Geopolitical tensions and elevated oil prices continue to be the other sources of risk to global growth.
Rising trade protectionism poses a grave risk to near-term and long-term global growth prospects by adversely impacting investment, disrupting global supply chains and hampering productivity.
We have collated a list of 10 rate sensitive stocks from various sectors such as banks, financial institutions and automobiles which investors can look at even if it raises rates at its August policy meet:
Analyst: DK Aggarwal, Chairman & Managing Director of SMC Investments & Advisors
Dewan Housing Finance Corporation Limited:
Strong NIM on the back of lower cost of funds and lower credit cost will ensure healthy return ratios for the company. Despite strong growth, the company has maintained stable asset quality and this trend may continue.
The Asset under Management (AUM) of the company surged 33% to Rs 1,11086 crore end March 2018 over March 2017. The disbursements zoomed 81% to Rs 15768 crore, while the loan sanctions moved up 85% to Rs 24319.51 crore in the quarter ended March 2018 over the corresponding quarter of last year.
Manappuram Finance Limited:
The company is witnessing healthy financial growth across all business segments. Diversification efforts paid off as growth in the overall business is well supported by the robust growth witnessed in the new businesses such as housing finance and vehicle finance.
According to the management, it expects to maintain strong growth momentum in all new business segments as well as gold loan segment. It has showed 15% QoQ growth in the consolidated Asset Under Management (AUM) to Rs 15,764.80 crore end March 2018 and gold loan AUM rebounded 5% to Rs 11,735 crore end March 2018.
Analyst: Sumit Bilgaiyan, Co – Founder and Director, Equity99
PFC’s restructured loan book is down almost 1300bps QoQ of which public restructured assets constituted to be around 6.9% of overall loan book, which is down by 870bps QoQ. Of total loan assets ~65% of advances were extended to state power utilities, 8% to central power utilities, 17% to private power utilities, and 9% to joint sector power utilities.
Loan book growth stood at mid-single digit on a QoQ basis while it shows healthy double-digit growth on a YoY basis. The overall disbursements witness strong growth on the back of strong loan off taking in distribution and renewables generation.
The company will remain focused towards the renewable sector due to the commissioning period in these loans is lower and the average yields are ~50-100bps lower too.
Admittedly, the contribution to loan book is still small. Given that large part of stress pertains to state utilities, where recovery is just a matter of time we believe the stock is available at a throwaway price. It is trading at below band of its historic P/B value band. We are recommending a BUY.
Kotak Mahindra Bank has been one of the biggest compounders in the last decade. But still, it has potential to mean returns. Financialisation of savings is a big structural change happening in the Indian economy. We believe Kotak Mahindra Bank is perfect stock to play this theme.
The financial ecosystem created by Kotak is well poised to capture the benefits of this financialization theme. It has a strong customer acquisition strategy on the liability side while it is well‐positioned to capture loan market share and the rising interest‐rate environment aides well for it.
We are recommending a BUY on Kotak Mahindra bank looking at its history and management pedigree. It has given strong returns to its shareholders but it still has a lot of potentials to give multifold returns in the future.
UPL is available at throw away price. It has witnessed a sharp correction due to the poor set of results and in the anticipation of Arysta acquisition. Post the deal management has clearly said that UPL is not over leveraging and still it will be able to generate massive cash flows in the future. This boosted the sentiments of the investors and stock has stabilized now.
We are quite bullish on UPL. UPL has a deep capability in the manufacturing of a number of products where it is not only among the largest global producers but also enjoying demonstrated cost leadership.
UPL has a diversified product portfolio of unique mixtures, combination products, and formulations, which are sold as branded off-patent products. UPL also emerged from just a product provider to a solutions provider.
Analyst: Mustafa Nadeem, CEO, Epic Research
The stock has recently corrected on the back of the rate hikes while it can be attributed to an overdue correction as well in last few months. Prices seem to have discounted the higher interest rate scenario while we maintain a bullish stance in stock at these levels for a higher target to 3 digit figures around 105 - 107.
Real estate sector seems to be coming out of the correction it has seen since the beginning of 2018 while a more than 30% correction in the sector seems to have discounted the high-interest rate scenario for coming few months. While overall medium-term trend remains positive, we expect the sector leader like DLF to resume its uptrend from current levels to retest its April highs of 300+ levels.
NBFCs have been the leader in current rally and further RBI previous rate hike has already boosted the investor's sentiment in this space. Stock also has breached its consolidation after rallying from 1000 levels to 1200. We expect this momentum to pick up with stock leading to higher levels of 1260.
With banking stocks having a more competitive business environment against NBFCs post rate hike, RBL is an outperformer in Smallcap space. We expect it to continue its current outperformance and recent sideways consolidation may act as a base for next extended move towards the level of Rs 630.
HDFC is the leader in private space with a strong presence and has an edge in interest margin play over other Pvt players. Better NII and asset quality of loan book make it a preferred stock in private banks. The present rally is already seeing large caps outperforming and we expect HDFC bank to continue to lead to higher targets of 2240.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.