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RBI Monetary Policy: MPC maintains status quo on repo; 12 rate-sensitive stocks with potential to return up to 29%

While a status quo on rates was expected, the equity market cheered the continuity in the monetary policy stance of the RBI MPC.

October 08, 2021 / 12:37 PM IST
 
 
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The equity market cheered the continuity in policy support after the Reserve Bank of India's Monetary Policy Committee (MPC) on October 8 left key policy rates unchanged and retained the accommodative stance in its bi-monthly policy meeting.

The benchmark indices extended gains with the Nifty50 rising 123 points to 17,913.50 and the BSE Sensex trading above the 60,000 mark at 60,111.55 with gains of 433.72 points at 11:36 hours IST.

"The credit policy is neutral to positive for the market as the market was already expecting that interest will remain unchanged but the market is cheering the fact that there is no change in the stance; while ending GSAP is a little negative surprise but the governor's comment that he is ready to resume GSAP if there will be a requirement gives respite," said Santosh Meena, Head of Research at Swastika Investmart.

MPC also retained the full-year GDP growth forecast at 9.5 percent while lowering the CPI or retail inflation target to 5.3 percent from 5.7 percent.

The repo rate or the rate at which RBI lends to commercial banks was retained at 4 percent and the reverse repo rate or the rate at which RBI borrows from banks was also left unchanged at 3.35 percent.

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"All members - Shashanka Bhide, Ashima Goyal, Mridul K Saggar, Michael Debabrata Patra and Shaktikanta Das (except Jayanth R Varma) - voted to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward," the RBI said in its policy statement.

"The governor is confident about growth and didn't show much worry about inflation therefore the market is witnessing a bullish momentum post policy," he added.

RBI Governor Shaktikanta Das in a statement said, given the existing liquidity overhang, the absence of a need for additional borrowing for GST compensation and the expected expansion of liquidity in the system as Government spending increases in line with budget estimates, the need for undertaking further G-SAP (G-sec Acquisition Programme) operations at this juncture does not arise, but the Reserve Bank would remain in readiness to undertake G-SAP as and when warranted by liquidity conditions and also continue to flexibly conduct other liquidity management operations including Operation Twist (OT) and regular open market operations (OMOs).

Follow LIVE updates of the RBI MPC monetary policy announcement here

We have collated a list of rate-sensitive stocks that experts say can return between 7 and 29 percent over the next 3-12 months. Returns are calculated based on the closing price of October 7:

Expert: Shitij Gandhi, Senior Technical Analyst at SMC Global Securities

Kotak Mahindra Bank: Buy | LTP: 1,952.45 | Target: Rs 2,305 | Return: 18 percent

Last month, the stock gave a hefty breakout above Rs 1,800 levels after consolidating in a broader range of Rs 1,650-1,800 levels for nearly six months. The rally was well supported by rising volumes as stock made a 52-week high of Rs 2,077.80 on September 28, 2021.

At current juncture, once again prices can be seen retracing towards Rs 1,950 levels on back of profit booking. From technical front, now Rs 1,800 would act as strong support level for the stock as its 200-day exponential moving average is also placed there.

This pull back can be a good opportunity to go long into a stock as stock has a potential to move beyond Rs 2,100 levels once again. One can accumulate the stock in range of Rs 1,950-1,960 levels for the upside target of Rs 2,305 levels with stop loss below Rs 1,750.

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PSP Projects: Buy | LTP: Rs 511.80 | Target: Rs 620 | Return: 21 percent

From last eight months, the stock can be seen sailing in broader range of Rs 400-500 levels with prices holding well above its 200-day exponential on daily charts.

From technical front, the stock has managed to give a fresh breakout this month after a prolong consolidation phase. Additionally the stock has formed a W pattern on broader charts which is again a bullish signal for the prices going forward.

One can accumulate the stock in range of Rs 510-515 levels for the upside target of Rs 620 levels with stop loss below Rs 440.

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Ashok Leyland: Buy | LTP: 135.85 | Target: Rs 158 | Return: 16.3 percent

The stock made its 52-week high of Rs 143.30 in the month of August 2021 and then retraced back towards Rs 115 levels to take support at its 200-day exponential moving average on daily charts. Since then recovery into the prices has been witnessed as stock can be seen trading in a rising channel with formation of higher high and higher bottom pattern.

At current juncture, the stock is on verge of fresh breakout above its 52-week high. The rising volume along with rise in price suggests for next up leg into the prices. Additionally on broader charts, the stock is on verge of fresh breakout after a prolong consolidation of nearly eight months.

One can accumulate the stock in range of Rs 130-135 levels for the upside target of Rs 158 levels with stop loss below Rs 120.

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Expert: Aditya Agarwala, Senior Technical Analyst at YES Securities

IndusInd Bank: Buy | LTP: Rs 1,166.70 | Target: Rs 1,250 | Return: 7.1 percent

The stock is on the verge of a breakout from a continuation Ascending Triangle pattern neckline placed at Rs 1,185, a successful breakout on good volumes will resume the uptrend taking it to levels of Rs 1,250.

Further, on the weekly chart it is on the verge of a breakout from a Flag pattern confirming bullishness dominant in the stock. RSI (relative strength index) has turned upwards after taking support at the 60 level which affirms the strength in the stock.

The stock can be bought in the range of 1,150-1,170 for a target of Rs 1,250; keeping a stop loss below Rs 1,120.

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Canara Bank: Buy | LTP: Rs 174.85 | Target: Rs 200 | Return: 14.4 percent

The stock is approaching key support levels of Rs 170 which happens to be the neckline of a Triangle pattern from which it had broken out few sessions ago. A successful test and resumption of buying interest from these levels will take the stock higher to levels of Rs 200.

Further, volumes were strong in the recent rally post breakout and is missing in the intermediate corrective move confirming strength in the stock.

Moreover, RSI has turned upwards moving in an extreme bull zone i.e. above 60 indicating a range shift in favour of the bulls.

The stock can be bought in the range of Rs 172-176 for a target of Rs 200, keeping a stop loss below Rs 160.

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Shriram Transport Finance Corporation: Buy | LTP: 1,343.20 | Target: Rs 1,525 | Return: 13.5 percent

The stock is approaching neckline of a wedge pattern placed at Rs 1,400 levels with an intermediate resistance at Rs 1,360. A successful breakout from the wedge pattern will resume the uptrend taking it higher to levels of Rs 1,525.

Further, volumes have been encouraging in the recent green candles conforming bullishness. RSI has turned upwards after making a positive divergence suggesting higher levels in the coming sessions.

The stock can be bought in the range of Rs 1,320-1,360 for a target of Rs 1,525, keeping a stop loss below Rs 1,250.

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Expert: Pushkaraj Kanitkar, VP-Equities at GEPL Capital

Canara Bank: Buy | LTP: Rs 174.85 | Target: Rs 205 | Return: 17.2 percent

The price chart has been in 6-month long classical ‘Cup & Handle’ pattern. The whole formation has taken place above the 200 DMA indicating a rational uptrend.

The recent breakout above the level of Rs 170 has been accompanied by above average volumes. The level of breakout has been retested in Wednesday’s correction.

Stock belongs to a sector which is relatively showing a good amount of upside, both technically as well as fundamentally. We feel the uptrend has legs to take it to pattern projection of Rs 205, with further opening of extensions to Rs 235.

A stop loss needs to be maintained around Rs 155, below which the pattern will negate.

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State Bank of India: Buy | LTP: 457.9 | Target: Rs 533 | Return: 16.4 percent

Once again, the price chart has been in 6-month long classical ‘Cup & Handle’ pattern. The pattern was further accompanied by formation of an ‘Ascending Triangle’ with a breakout occurring above the Rs 455 mark.

The price pattern post mid-August indicates a clear upsloping trendline with a slope close to the median 45 degrees. We feel the uptrend has legs to take it to pattern projection of Rs 533, with further opening of extensions to Rs 586.

A stop loss needs to be maintained around Rs 424, below which the pattern breaks the trendline & monthly supports.

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Axis Bank: Buy | LTP: Rs 777.10 | Target: Rs 950 | Return: 22.2 percent

The price pattern of a breakout above earlier top (Rs 800) will trigger a momentum buy in this stock. The pattern was further accompanied by respect of a rational uptrend, that has been running parallel to the 200 DMA.

The price pattern post mid-April indicates a clear upsloping trendline with a slope close to the median 45 degrees. We feel the uptrend has legs to take it to pattern projection of Rs 950.

A stop loss needs to be maintained around Rs 725, below which the pattern breaks the 200 DMA rather convincingly.

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Expert: Siddharth Sedani - Vice President, Equity Advisory at Anand Rathi Shares and Stock Brokers

Larsen & Toubro: Buy | LTP: Rs 1,712.45 | Target: Rs 1,932 | Return: 12.8 percent

Management talked of a healthy opportunity pipeline of Rs 9.6 lakh crore in FY22 (Rs 6.6 lakh crore domestic, the rest international) & the robust order backlog (around Rs 3.3 lakh crore), sturdy balance sheet and no near competitor. On lower execution, L&T's Q1 FY22 consolidated revenue was up 38 percent, less than Anand Rathi's estimates. The EBITDA margin was 10.8 percent (largely, in line), a 319bp expansion YoY, aided by better cost management and operating leverage. Excluding services segment, order inflow was a modest 11 percent up YoY due to delays in tendering and awarding.

For the rest of FY22, the overall opportunity pipeline continues to be strong at Rs 8.96 lakh crore (Rs 9.06 lakh crore at end-FY21). We reiterate our positive stance on the company's execution pace of the robust order backlog (around Rs 3.24 lakh crore), sturdy balance sheet and no near competitor.

We believe that, in the present situation, L&T's greater public-sector exposure (i.e. 84 percent of its domestic order book) augurs well in credit risk and limited opportunities from private industries (however, showing some signs of improvement). Also, 60 percent of the order book comprises variable price contracts that cushion margins in such an inflationary environment.

With a robust order book in hand and a sturdy pipeline, revenue assurance is healthy. We expect revenue/PAT CAGRs of 17 percent/31 percent over FY21-23. Valuing the company on a sum-of-parts basis and at a 20x multiple for its core business, we arrive at a target price of Rs 1,932. We retain a buy. Risks are sluggish capex and volatile crude-oil prices.

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Hero Motocorp: Buy | LTP: Rs 2841.65 | Target: Rs 3,653 | Return: 28.6 percent

Hero Motocorp reported consolidated revenue from operation of Rs 5,502.8 crore during Q1FY22, a growth of 85.3 percent YoY. The company registered a volume growth of 81 percent YoY during Q1-FY22. The company sold a total of 10.25 lakh units of motorcycles and scooters during Q1 FY22 despite Covid-19 related disruptions. Spare sales number for the quarter was Rs 455 crore for Q1 FY22, which is 8 percent of revenue. On delivered volume of 10.25 lakh during Q1 FY22, the company gained 200 basis point market share over full year 2021.

The commodity costs continued to rise, thereby impacting the industry margins. The company has taken judicious and measured pricing decisions, reducing the impact on the customers by offsetting part of the increase through the accelerated Leap-2 saving program.

On electric vehicle (EV) front, the company guided to follow three different strategies. First, the launch of fast charging EV product by March 2022, secondly investment in Ather and third the battery swapping technology through Gogoro. The company remains optimistic about demand over the coming months with the start of the festive season and also a healthy monsoon and encouraging farm activity.

With last-mile retail opening up further, the company expect numbers to be positive as they move forward. Hero Motocorp aims to build further on its market leadership as they continue to delight customers with superior products and technology. We have buy rating on the stock with a revised target price of Rs 3,653.

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HDFC: Buy | LTP: Rs 2,727 | Target: Rs 3,150 | Return: 15.5 percent

Housing Development Finance Corporation's (HDFC) consolidated revenues grew 3.5 percent year-on-year (YoY) in Q1FY22. On standalone basis, HDFC reported revenues of Rs 11,657.5 crore, down 10.4 percent YoY. Net interest income grew by 22 percent YoY in the quarter. Net interest margin (NIM) stood at 3.7 percent. The company reported 181 percent growth in individual loan disbursements (after adding back loans sold in the preceding 12 months) during the quarter ended June 30, 2021 compared to the corresponding quarter of the previous year.

The growth in the total loan book after adding back loans sold was 22 percent. The provisions as at June 30, 2021 stood at Rs 13,189 crore. Cost to income ratio stood at 8.0 percent compared to 9.0 percent in the previous year. Standalone PAT for Q1FY22 stood at Rs 3,001 crore. As of June 30, 2021, assets under management stood at Rs 5,74,136 crore, reflecting a growth of 8.1 percent YoY. Individual loans which comprised 78 percent of the total loan book, grew 14 percent YoY. The demand for home loans continues to remain strong and disbursements have picked up with the unlocking of respective locations.

While disbursements during April and May of the current financial year were somewhat impacted, business has reverted to normalized trends in the months of June and July. July 2021 disbursements were the highest ever in a non-quarter end month. Disbursements between April to July 2021 i.e. four months were 108 percent of the disbursement levels achieved during the first six months of the previous year.

Gross non-performing loans as at June 30, 2021 stood at Rs 11,120 crore, equivalent to 2.24 percent of the loan portfolio, up from 1.98 percent at the end of the previous quarter. The provisions carried as a percentage of the Exposure at Default (EAD) is equivalent to 2.64 percent.

Reflecting strong capital position, capital adequacy ratio stood at 22.0 percent and Tier I capital ratio was 21.3 percent, exceeding the minimum regulatory requirement for the capital adequacy ratio and Tier I capital of 15 percent and 10 percent respectively. The company maintains higher levels of liquidity & has a strong deposit base. The company continues to grow strongly given its strong market position in the housing finance sector, healthy spreads, sturdy capital position, conservative provisioning and strength from its subsidiaries. We maintain buy rating with a target price of Rs 3,150 per share

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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.
Sunil Shankar Matkar
first published: Oct 8, 2021 12:32 pm

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