RBI Monetary Policy update by GEPL Capital
Reserve Bank of India has surprised everybody with the intermediate rate cut on today early morning just before market starts allow the stocks to flurry along with the rupee. As central bank is being successful in managing and controlling the inflation without affecting the growth momentum rate cuts will likely to improve the growth momentum in the upcoming period.
Reserve bank cut the Repo rate with 25 basis points from 8% to 7.75% with the immediate effect. They have maintained the reverse repo rate unchanged at 6.75%. CRR rate has also kept unchanged at 4%. RBI governor Mr. Raghuram Rajan has also given the guidance of keeping inflation rate just below 6% before month of January 2016.
Sector to watch closely after the rate CutsAs central bank rates are affecting the whole economy of the country and consider being very important economic event. We believe that capital intensive business are affecting much faster and will perform with a higher momentum in upcoming period. Repo rate cut will likely to infuse more liquidity in to the markets ( both primary and secondary ) which will take our economy into the high growth phase and will also proved to be critical to control disinflationary pressures. It will also prove to be effective in sustaining in the high quality fiscal consolidation and easing in the pressure of the supply constraints. It will also assure the key inputs availability such as power, Land minerals and infrastructure.
Banking and NBFCBanking and NBFC sector always have high synchronization capacity with the economic events and consider being economic sensitive sector. Banking sector will be impacted positively in the upcoming period as rate cuts will likely to infuse liquidity in the markets. Corporate loans will likely to be cheaper so more loans and advances will be disbursed and earnings of the banks will likely to grow with the higher pace in the upcoming period of one to one and half year.
On the retail side lower interest rates will likely to make loans cheaper so NPA’s of the banks will likely to reduce which will also help to strengthen the balance sheet. This will also improve asset quality of the banks and NBFC’s.
Private Banks like Axis Bank, HDFC Bank, and Yes Bank will be the key banks to watch. Also NBFCs like HDFC, Mahindra Finance, L&T Finance will likely to remain top picks for the sector.
Auto and Auto Ancillary Sector.Auto and Auto ancillary sector is also consider as highly capital intensive business in nature. Sector has reduced the growth momentum after central government likely to put excise duty burden on the sector. Many of the consumer vehicles and commercial vehicles from the domestic markets have been purchased on the loan, interest rates sensitivity will likely to affect the sector directly on the volume growth. We believe that rate cuts will affect the sector positively by making loan amount cheaper and affordable for the more number of people. This will help to improve the volumes and makes the sector more lucrative. Large Cap Auto companies those have enough market share to penetrate the markets more and get the desire momentum. Maruti Suzuki, Hero MotoCorp, TVS Motors, Eicher Motors, Bosch, and Bharat Forge will likely remained top picks among the sector.
Real Estate and Infrastructure sectorRate cuts will also prove to be boon for the Real estate and Infrastructure sector. Controlling the inflation and reducing the loan amount will encourage the customers to invest in the sector and higher participation will increase the volumes. This gain in the participation and volume growth help sector to put on the right track and make the sector more lucrative. Godrej Properties, Oberoi Realty, Mahindra Lifespace Developers etc. will remain the Top Picks for the sector.
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