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The Reserve Bank of India (RBI) which will announce the policy review on 6th December after two days of Monetary Policy Committee (MPC) meeting beginning 5th December, is likely to keep repo rates unchanged at 6 percent with a hawkish stance on inflation concerns.
The retail inflation or consumer price index-based- inflation inched up to a seven-month high of 3.58 percent in October from 3.28 percent in the month of September. The crude oil prices which contribute to rise in inflation is in an upward trajectory for the past few months.
“In the ongoing meeting, an interest rate cut now is more or less ruled out due to spiraling inflation as crude oil price are now trading above 60 dollar a barrel. To note, both inflation, the wholesale and at the retail level has been rising. Even in the month of October, RBI kept rates on hold and expressed concern about rising inflation,” D.K. Aggarwal, Chairman and Managing Director, SMC Investments, and Advisors told Moneycontrol.
“As the US economy is growing, there is an uptick in investors’ sentiment and a pickup in business investment amid low unemployment rate, it is expected that Fed would go for a rate hike in the December meeting and RBI would wait for the Fed’s action on key policy rates,” said Aggrawal.
As the inflation rate is expected to remain high for a longer duration due to factors such as firming international crude oil prices, fiscal issues etc. and RBI is expected to avoid tinkering with rates and await for more clarity. It might adopt a more hawkish tone, suggest experts.
“We expect RBI to sit tight on the monetary policy, with no rate move expected for at least the next two quarters. In fact, there's a possibility of the central bank adopting a relatively hawkish tone given the sharp liquidity dip in banking, growing inflation and concerns of fiscal slippage,” Amar Ambani, Partner & Head of Research, IIFL said in a note.
Apart from the outcome of the monetary policy, the future policy statement will be of utmost importance. Most analysts expect a cut probably in the first half of next year to fuel growth momentum.
“The status quo of the industry will help us decipher the further steps that the RBI might take in the future, giving us a glimpse of the upcoming activities. We can expect a rate cut next year and a lot depends on how inflation plays the role,” Chirag Singhvi, Analyst – Fundamental Research - KIFS Trade Capital told Moneycontrol.
“We feel that DHFL is one to benefit from the rate cut as they are one of the largest loan books after HDFC, Bajaj Finance, and Finserv. Companies with huge debt are directly beneficiary to a rate cut. Manglam cement, NCC & HDFC Bank are among the stocks. With the cut HDFC is likely to benefit from the cost of funds and growth,” he said.
Here is a list of top ten stocks from across analysts at brokerage firm which could benefit the most from a rate cut by the RBI:
Analyst: Sanjeev Jain, Associate Vice-President of Ashika Stock Broking
State Bank of India (SBI):
SBI is the sector leader with healthy loan book. Despite the challenging environment, the bank has reported a stable set of numbers over the last several quarters.
Recently, SBI has raised interest rates on bulk deposits of above Rs.1 crore to 10 crore by 100 bps. Therefore, any cut in the key rates will reduce its cost of fund, which may improve its margin as well as advance growth.
We believe the Bank will perform well with the improvement in the economy going forward.
Punjab National Bank (PNB):
In Q2FY18, the bank reported an improvement in its asset quality. Its Gross NPA and Net NPA improved by 35bps and 23bps QoQ.
Fresh slippages for the quarter stood at Rs.3500 crore against Rs.6649 crore on a QoQ basis. Domestic Net Interest Margin (NIM) improved by 6bps QoQ to 2.62 percent.
We believe, over the last several quarters much of the stress is being recognized and now the government focus is on sectors like infrastructure, iron & steel and rural economy etc., will positively impacting PNB going forward.
Maruti Suzuki India Ltd:
Maruti Suzuki has reported a healthy November sales growth. It sold 1.54 lakh units during the month, an increase of 14.1 percent on a YoY basis.
The growth was driven largely by domestic sales that grew by 15 percent on a YoY basis to 1.45 lakh units. We believe, reducing interest rate cycle coupled with, rising income base and improving rural demand, positively impacting automobiles industry wherein, Maruti is the front-runner to take the standing opportunity.
Analyst: Mustafa Nadeem, CEO, Epic Research
A cut in rates would directly have an impact which could result in improved spending that may further boost the momentum of this stock. The stock has been in an overall uptrend positing good moves while a rate cut would further improve volume action and undertone for it to push towards Rs780 - 770 zones with a stop loss below Rs720
IndusInd Bank is amongst the top performing bank from the private sector space and is riding the liquidity wave. The stock has been an outperformer in the overall banking sector private players.
The stock is in a higher top and higher bottom trajectory and any rate cut would further boost this stock to rally and add more gains. Any rate cut would further boost the stock to test the higher top of around Rs1850 - 1900 zones in coming few weeks.
Larsen and Toubro (L&T):
The stock may end its short-term correction cycle in case a surprise cut is made. Given its dominating position in EPC and infra space, it will have the direct benefit of improved spending. This stock can test higher levels of Rs1330 – 1340 going forward.
HDFC Bank is the leader in the private banking space and has been leading the price momentum despite correction among its peers.
The dominating presence and stronghold among the space and better net interest margin (NIM) as compared to other players make it a favored stock in case a rate cut is seen. The stock may rise towards Rs1950 - 2000 zone in case a change in status quo is made by RBI.
Analyst: Pushkaraj Sham Kanitkar, AVP - Technical Research at GEPL Capital
HDFC:
HDFC is one of the big private sector lenders will benefit from the cost of funds and also advances will likely to increase. In terms of business, the company will have strong growth rate and ROA will likely to increase.
DHFL:
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 net interest margins (NIMs) and asset quality which is commendable, given the aggressive growth in the loan book.
The Company has already posted robust results in the previous quarters. Rate cuts will make loans cheaper and encourages the sales growth of the products. We believe that Ashok Leyland will be benefit from the rate cut.
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.
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