The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has unanimously decided to hike the repo rate by 50 basis points (bps) to 4.9 percent as inflation is likely to be above 6 percent till December 2022 given global growth risks and geopolitical tensions. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target range, while supporting growth.
After the repo rate hike, the standing deposit facility (SDF) rate stands adjusted to 4.65 percent and the marginal standing facility (MSF) rate and the bank rate to 5.15 percent, but the MPC has decided to keep cash reserve ratio (CRR) unchanged at 4.5 percent.
“The supply-side measures taken by the government would help to alleviate some cost-push pressures. At the same time, however, the MPC notes that continuing shocks to food inflation could sustain pressures on headline inflation. Persisting inflationary pressures could set in motion second-round effects on headline CPI (Consumer Price Index). Hence, there is a need for calibrated monetary policy action to keep inflation expectations anchored and restrain the broadening of price pressures,” the RBI said in its note.
The central bank raised its full year FY23 inflation forecast to 6.7 percent, from 5.7 percent earlier, as the tense global geopolitical situation and the consequent elevated commodity prices impart considerable uncertainty to the domestic inflation outlook. While considering the inflation forecast, the RBI hopes for a normal monsoon in 2022 and an average crude oil price (Indian basket) of $105 per barrel.
“The MPC increased its CPI estimates to 6.7 percent from 5.7 percent for FY23, which now appears to be a more realistic level. This contributes to enhanced credibility and confidence in the RBI’s policy decisions. The status quo on CRR certainly comes as a positive surprise for the banking sector and augurs well to nurture credit growth revival,” said Yesha Shah, head of equity research at Samco Securities.
Overall, as the repo rate still has some catching up to do compared to global peers, this policy seems to be in the right direction to achieve governor Shaktikanta Das’ aim to bring back the policy rates to at-least pre-Covid levels, she believes.
The RBI expects further input and output price pressures considering early results from manufacturing, services and infrastructure sector firms polled in the its surveys, but it has retained real GDP growth projection for FY23 at 7.2 percent, though spillovers from prolonged geopolitical tensions, elevated commodity prices, continued supply bottlenecks and tightening global financial conditions weighed on the outlook.
“The recovery in domestic economic activity is gathering strength. Rural consumption should benefit from the likely normal southwest monsoon and the expected improvement in agricultural prospects. A rebound in contact-intensive services is likely to bolster urban consumption, going forward,” the central bank reasoned.
Investment activity is expected to be supported by improving capacity utilisation, the government’s capex push, and strengthening bank credit, the RBI said.
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We have collated a list of rate-sensitive stocks that experts say can give 6-20 percent return over the next three to four weeks. Returns are calculated based on the closing price of June 7.
Expert: Vidnyan Sawant, AVP, technical research, at GEPL Capital
Kotak Mahindra Bank: Buy | LTP: Rs 1,858.15 | Stop-loss: Rs 1,760 | Target: Rs 2,127 | Return: 14 percent
On long-term charts, Kotak Mahindra Bank is moving in a strong uptrend with higher highs and higher lows formation.
After nearly 26 percent correction from the life-high levels of Rs 2,253, Kotak Mahindra Bank took support at its 50 percent retracement level (Rs 1,625) and the stock has seen a sharp bounce since then.
On the weekly charts, the stock has formed a double bottom price pattern at Rs 1,625 levels and sustaining above surpassed its 20 weeks SMA (simple moving average—Rs 1,813) since the last three weeks.
The weekly RSI (relative strength index) indicator is making higher top, higher bottom formation and sustaining above the 50 mark.
Going ahead, we can expect the stock price to move higher towards Rs 1,976 followed by the Rs 2,127 level. We recommend following a stop-loss of Rs 1,760 for this trade.
Bank of Baroda: Buy | LTP: Rs 101.90 | Stop-loss: Rs 88 | Target: Rs 122 | Return: 20 percent
Bank of Baroda is moving in an uptrend with higher highs and higher lows since May 2020. The stock has strong support at Rs 89 levels which is a 38.2 percent retracement levels since the last four months.
On the daily charts, we see that the stock is respecting its 200 days SMA (Rs 94) in the recent past which shows the bullish undertone of the stock.
The RSI indicator on all timeframes i.e. daily, weekly and monthly is sustaining above or near the 50 mark indicating positive momentum in the price.
Going ahead we expect the price to move higher towards 115 followed by Rs 122. We recommend a stop-loss of Rs 88 on a daily closing basis.
Federal Bank: Buy | LTP: Rs 91.15 | Stop-loss: Rs 81 | Target: Rs 107 | Return: 17 percent
On the monthly charts, Federal Bank is maintaining higher top, higher bottom formation and sustaining above 20-month SMA (Rs 85) levels.
On the weekly charts, the stock has been getting strong support of an upward sloping trend line since April 2021, indicating positive strength of the price.
The RSI indicator on the daily and weekly charts is moving higher after forming a bullish hinge near the 40 mark.
Going ahead we can expect the stock to move higher towards Rs 98 followed by Rs 107 levels. We recommend maintaining a stop-loss of Rs 82 for this trade.
Expert: Kunal Shah, senior technical & derivative analyst at LKP Securities
ICICI Bank: Buy | LTP: Rs 735.25 | Stop-loss: Rs 710 | Target: Rs 810-825 | Return: 10-12 percent
The stock has been an outperformer when compared to other banking counters. The stock on the daily chart has formed an inverse head and shoulder pattern, the breakout of which is placed at Rs 760 levels.
The stock is trading above its medium-term moving averages indicating bullishness in the structure.
HDFC Life Insurance Company: Buy | LTP: Rs 605.30 | Stop-loss: Rs 550 | Target: Rs 650-672 | Return: 7-11 percent
The stock after a massive correction is showing early signs of base formations at the lower levels. The momentum oscillators have entered the buy zone which indicates the internal strength of the stock.
The stock is trading in an uptrend on the weekly chart with the higher highs and higher lows formation intact.
Bajaj Finance Futures: Sell | LTP: Rs 5,872 | Stop-loss: Rs 6,300 | Target: Rs 5,600-5,500 | Return: 5-6 percent
The stock is trading in a downtrend on the daily chart with the lower high and lower low formation intact. The RSI indicator has given a bearish crossover on the daily chart indicating weakness in the near term.
The downside momentum is likely to continue as long as it stays below the level of Rs 6,300.
Godrej Properties: Buy | LTP: Rs 1,325 | Stop-loss: 1,300 | Target: Rs 1,421-1,550 | Return: 7-17 percent
The stock has been dropping from a high of Rs 2,598 (October 2021) without any significant bounce.
The stock has now approached a significant support at Rs 1,300 levels (61.8 percent Fibonacci levels from the March 2020 low of Rs 560 to October 2021 high of Rs 2,598).
The interweek/intermonth technical outlook will shift to buy mode only if the stock stays firm above Rs 1,300 levels. Confirmation of strength only above Rs 1,421 mark.
The stock is likely to continue its underperformance as long as it stays below Rs 1,421 mark.
One can establish long positions at the current market price, and on dips between Rs 1,150 and Rs 1,200, targeting Rs 1,421 and then at Rs 1,550.
State Bank of India: Buy | LTP: Rs 463.4 | Stop-loss: Rs 391 | Target: Rs 521-550 | Return: 12-19 percent
The long-term charts are aggressively bullish after the stock zoomed higher from the Covid-induced panic low of Rs 149 in May 2020.
Technically, the stock could correct in the near term amid overbought conditions. The stock’s 200 DMA at Rs 463 mark is also acting as a strong hurdle, hence some corrective declines are likely.
SBI’s immediate supports are placed at the Rs 425-438 zone and then logical support at the Rs 391-400 zone.
One can establish long positions on dips between Rs 400-415 zone, targeting Rs 521 and then at the Rs 550 mark.
The biggest intermonth support is still seen way down at the Rs 7,050-7,100 zone. Interweek support is at the Rs 7,515-7,500 zone. Its 200-DMA is at Rs 7,600 levels.
Technically, the major hurdles are seen at Rs 8,100.
The good news for investors is that the technical is aggressively bullish for Maruti. The stock is aiming to move above its biggest hurdles and probably above its lifetime high of Rs 9,997 levels.
Momentum is likely to be on the upside as long as the stock stays above its biggest intermonth support at the Rs 7,515-7,550 zone.
One can look to buy at the current market price and aggressively buy on any corrective declines to the Rs 7,500-7,550 zone, targeting Rs 8,100 and then the Rs 9,050 mark.
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