Rate cut usually acts as a sentiment booster and aid companies that have to service large debts
The Reserve Bank of India (RBI) slashed repo rate by 25 bps to 6 percent on April 4 as expected and kept the stance unchanged to ‘Neutral’. This is the second rate cut in 2019.
“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent while supporting growth,” the central bank said in a statement.
The MPC notes that the output gap remains negative and the domestic economy is facing headwinds, especially on the global front. The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish.
Rate cut usually acts as a sentiment booster and aid companies that have to service large debts. A cut by RBI injects liquidity in the economy. Loans with a low rate lead to an increase in buying interest in the consumer-driven economy which will help India Inc. to deliver strong earnings growth.
Top sectors which are likely to benefit the most from a rate cut are banking, NBFC, infrastructure and real estate. This rate cut will help in boosting demand and ease interest rate pressure on debt-heavy companies, suggest experts.
“If we look from the perspective of real estate sector the RBI rate cut will impact the home loan interest rate, this will allow the reduction in EMIs which will bring a positive impact on the sector's growth. IndiaBulls real estate and DLF are the two stocks which have some debt burden and seems to get the benefit of this rate cut,” Ritesh Ashar, CSO at KIFS Trade Capital told Moneycontrol.
“NBFC sector along with banks are also likely to get the benefit of this rate cut as the cost of funding will become low and there would be an improvement in the margin and in this space stocks like DHFL and Indiabulls Housing Finance looks quite promising,” he said.
We have spoken to various experts and they have given us a list of 12 rate sensitive stocks from the fundamental and technical basket which are likely to benefit the most from a rate cut by RBI:
Analyst: Vineeta Sharma, Head of Research, Narnolia Financial Advisors
The assets quality has been improving with declining stress additions. The SMA-2 now stands at Rs 17,000 crore while provision coverage ratio (PCR) of 75 percent in NCLT accounts gives comfort in lower credit cost in FY20.
The management expects Rs 34,000 crore of NPA resolution to be completed in the near term. For FY20, management expects slippages to decline to Rs 24k-30k crore.
The net interest margin (NIM) has been showing improving trend led by lower slippages and was supported by large low-cost deposits franchise.
The management aims for a 3 percent net interest margin (NIM) in a year’s time. On the growth front, advances picked up to the industry level growth seems to be a key positive for the bank. SBIN has approved capital raising plans of Rs 20,000 crore in the year FY20.
After a peak of GNPA in FY18, the bank has improved its asset quality during FY19 by moderating slippages with higher recovery and upgradation. Elevated downgrade cycle of the corporate book has been completed and the bank is now focusing towards the A+ & above-rated corporates.
The margin is expected to remain strong for the bank on account of shifting its asset mix towards the high yield retail assets and with the asset re-pricing on the increased MCLR rates.
Amitabh Chaudhry, the new MD & CEO of the bank, has laid down his strategy on three vectors - growth, profitability and sustainability.
Going forward with the stabilisation of credit cost on account of lower slippages and higher NII with the expected NCLT recovery, the earnings of the bank will increase. Axis Bank is currently trading at 2.4x BVPS FY20e.
The bank has shown a strong turnaround on the asset quality front on account of decline in slippages as well as good traction in recovery and up-gradation.
Even the stress pool (BB & below) has been declined and 93 percent of corporate slippages were from the stress pool. However, management has been continuously increasing the provisioning to cope with the further increase in the stressed assets going forward.
PCR ratio of the bank is 76 percent, which is the best among its peers. The margin is expected to improve with the MCLR reset and recovery of NPAs.
Going forward, moderation in NPA addition, lower credit cost and improvement in margins will boost the profitability in FY20. The management targets consolidated ROE of 15 percent in the near-term and will relook at the target once credit cost normalises. ICICI Bank is currently trading at 2.1x BVPS FY20e.
Here is a list of 9 stocks which are looking strong based on technicals:
Analyst: Jayant Manglik, Religare Broking Ltd
It has ended 3-month long consolidation phase of late and is likely to maintain the prevailing momentum. Its chart formation and positioning of the banking index are adding to the confirmation.
Though the auto pack is underperforming the benchmark index, indications are in the favour of recovery in the near future. Amongst all, Maruti looks more stable as it has spent nearly six months under consolidation while holding strongly above the support zone of long term moving average of 200-EMA on the weekly chart.
It is a consistent performer from the realty pack and currently trading around its record high. The recent surge in stock price combined with a noticeable rise in volume indicates buying interest. Accumulate on dips.
Analyst: Abhijeet Bajpai, Co- Founder, Avighna Trades
Hero MotoCorp formed a triangle formation breakdown. But, after a breakdown, it made a base at around Rs 2,500. If the stock enters into the triangle formation, it will bounce back towards Rs 2,660.
Bajaj Auto registered sales growth in markets in March. Technical charts suggest that the stock may bounce back from lower levels.
If the momentum sustains and the stock breaks above Rs 2,920 that is also its 200-DMA, we will see a level closer to Rs 3000 levels on the stock.
DLF is making higher highs and higher lows on charts. It is consolidating between Rs 185 on the lower side and Rs 225 on the upper side.
If the stock sustains above Rs 208 that is also its peak seen in the current rally then there are higher chances that it will breach this level on the upside and head towards Rs 220 in the near-term.
Indiabulls Housing Finance is getting resistance at around Rs 878 that is also its 200-DMA. If it breaks above Rs 880 then we will see levels closer to Rs 900 in the very short term.
Indiabulls Housing Finance is also a high beta stock and a rate-sensitive stock that quickly react to any announcement related to key interest rates.
Godrej Industries is trading above its long-term moving an average of 200-DMA. A rate cut announcement will fuel more upside momentum.
At the moment, the stock is consolidating around the level of Rs 550-525 and a breakout above on the upper consolidation band could take the stock towards Rs 570+ in the short term.
Voltas is in the business of air conditioners and as the summer season peaks up, the demand for consumer durables like AC will also pick-up.
Voltas has already formed a triangle pattern in a rally. Triangle in a running rally is a continuation pattern that will take the stock to newer highs.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.