Kshitij Anand Moneycontrol News
The Reserve Bank of India (RBI) on expected lines slashed the key repo rate by 25 bps to 6 percent for the first time since October 2016. The reverse repo rate stands adjusted to 5.75 percent, and the marginal standing facility (MSF) rate and the Bank Rate have been reduced to 6.25 percent.
The decision of the monetary policy committee (MPC) is consistent with a neutral stance of the monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, RBI said in a statement.
“The RBI’s decision was largely dependent on the three unknowns -- GST, Demonetisation, and Oil. The consensus was largely forecasting that a rate cut is on the anvil,” Nikhil Kamath, Co-Founder & Head of Trading at Zerodha told Moneycontrol.
“The markets while factoring in a 25 basis cut were hopeful of a 50 basis point cut as well. This could lead the markets lower intraday as this was totally factored into the price already,” he said.
In June, retail inflation measured by year-on-year changes in the CPI plunged to its lowest reading in the series based to 2011-12. This was mainly the outcome of large favourable base effects which are slated to dissipate and reverse from August.
Although month-on-month increases in the price level have been picking up since April, they were weak in relation to the typical food-price drove summer uptick, said the RBI statement.
The policy statement further highlighted that external demand conditions are gradually improving and should support the domestic economy.
The projection of real GVA growth for 2017-18 has been retained at the June 2017 projection of 7.3 percent, with risks evenly balanced.
“If growth and inflation continue to surprise on the downside, there could be chances for further rate cuts. We expect 50-75 basis points collective rate cuts in the whole financial year,” Achin Goel, Wealth Management and Financial Planning, Bonanza Portfolio Ltd told Moneycontrol.
Impact on markets
The RBI's decision to cut rates by 25 bps was mostly discounted in prices which led to sharp run up in prices especially of financials. The rise from 10,000 to 10,150 while Bank Nifty outperformed as it rose from 24,500 to 25,200.
"We have seen positive build0up in interest rate sensitive sectors like automobile, banking, realty, and NBFC. So liquidity was already present for a while and with this boost, we may see further momentum," Mustafa Nadeem, CEO, Epic Research told Moneycontrol.
"We expect realty stocks to pick some momentum while private banks will do well due to their better return on deposits as compared to PSU banks. We maintain our buy on dips strategy with next targets around 10,400 - 10,450 while we see a fresh base for Nifty at 9,950. Bank Nifty may set the tone towards 25,800 while the base is seen at 24,800," he said.
Here is a list of ten stocks which are likely to benefit the most from a rate cut by the RBI:
Analyst: DK Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd
JK Tyre & Industries Limited
The company has good fundamentals and management is focusing towards reducing its debts. Its plants are world benchmarks in water consumption with zero waste, 36 percent of its energy consumed is renewable.
It is a high-recall and trusted brand since last four decades. Currently, it has an overall market share of 16 percent. While 75 percent of JKT's tonnage volume is contributed by the commercial vehicle segment, the passenger car segment accounts for 15 percent of the volumes.
Suprajit Engineering Limited
The company is the most preferred manufacturer of cables and meets the demand of virtually every major OEM in the automotive sector. It would more focus on cables in the export market for better positioning.
Steady demand from specific OEMs and the shoring up of control-cable growth in the auto and non-auto markets, exports and replacements would guide the further growth to the company.
According to the management, its profitability would improve in the coming years as its capacity expansion and integration with the acquired companies is almost done.
South Indian Bank Limited
Looking ahead at FY2018, it expects loan growth target of 20 percent with a focus on retail, SME, Agri, gold and Auto loans and NIM is expected to improve from the current 2.72 percent to 2.85 percent minimum.
The bank has been focusing on various retail segments such as agriculture, MSME, home loans and auto loans have registered substantial growth year-on-year.
Business performance of the bank such as domestic loan growth, overall corporate advances, retail loan growth, CASA ratio are continuously improving. Moreover, the bank would focus on fully leveraging existing resources and infrastructure.
Oberoi Realty Limited
The company has the quality of land bank, its healthy balance sheet & management bandwidth to execute large projects would give a good boost.
According to the management of the company, sales volumes look strong due to a lot of significant policy changes for the real estate sector as well as the domestic economy.
Key initiatives like the passing of the Real Estate Regulatory Act, clarity in REIT legislation and the GST rollout will eventually boost market sentiments and buoy the economy.
Moreover, growth-centric initiatives of the state government and its sustained focus on key infrastructure projects would give favorable impact on the long-term health of the real estate sector in the state.
Reliance Capital Limited
The company has made significant progress during the year FY17 towards improving operational performance across its all core businesses and is fully geared to capitalise on its growth aspirations.
With current businesses largely steady and increasing market share, the strong balance sheet would bring healthy growth prospects for the company. Also, the implementation of GST will boost the earnings of the company going forward.
Analyst: Nitasha Shankar, Sr. Vice President and Head of Research, YES Securities (I) Ltd.
Dewan Housing Finance Corp. Ltd:
The company is well capitalized to grow loan book in the housing finance space. The housing finance space in itself is expected to grow owing to the focus on affordable housing. The company has maintained stable NIMs & asset quality which is commendable, given the aggressive growth in the loan book.
Gruh Finance:
The company has a strong presence in affordable housing space where it enjoys pricing power in spite of intense competition. It has been able to maintain one of the healthiest NIMs in this space through lower cost of funding.
HUDCO:
The company plays a key role in various government schemes to develop the Indian housing and urban infrastructure sectors.
Its core business is to act as a wholesale financier, lending to state governments and their agencies, which in turn helps mitigate risk. The company has a strong track record and enjoys highest credit rating
LIC Housing Finance Company:
The company has been strengthening its core mortgage business. The government has announced various schemes for urban development which in the long term are expected to benefit the middle-class households, which has been the company’s core area of focus.
The recent correction in the stock price has made the valuations attractive from a long term perspective.
Brokerage firm: Sharekhan Ltd
Maruti Suzuki:
A rate cut will help India’s largest car maker to drive sale revenue. In the month of July, Maruti Suzuki reported solid growth of 20.6 percent in July sales, which was far ahead of analysts' estimates.
Domestic sales grew by 22.4 percent year-on-year to 1.54 lakh units while exports grew by 0.1 percent to 11,345 units in July, which was also ahead of expectations.
“Maruti has successfully established itself in the big car category (Ciaz, Vitara Brezza, Dzire and Baleno), led by strong product features and success of its premium distribution network Nexa, which offers a unique buying experience,” Sharekhan said in a report.
“Maruti continues to remain our top bet in the automotive space, given the sustained trend of outpacing the PV industry’s growth. We retain our Buy rating on the stock with a price target of Rs.8,500,” it said.
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