A rate hike is something which might not be taken in a positive light by most of the sectors
Mark participants are eyeing the outcome of the Reserve Bank of India's Monetary Policy Committee (MPC). The Street has more or less discounted a rate hike of 25 bps and a change in stance by the central bank.
This is the first time the committee is meeting for three days instead of the regular two days. Some experts expect the MPC to revise the benchmark repo rate upwards from current 6 percent.
Repo rate is the rate at which banks borrow short-term funds from the RBI.
Observers feel that the MPC may shift its stance on liquidity to hawkish from being neutral earlier. This could be in preparation for a hike in August if rates are not hiked in the June meeting.
A rate hike is something which might not be taken positively by many sectors. Stocks in sectors like consumption, consumer durables, banking and real estate will be impacted the most, along with rupee and bond market.
"The impact of rate hike by the RBI (if not in June then in the August meeting) will just hit the sentiment of the inventors. As said earlier, if RBI becomes more hawkish, there will be an impact on all the sectors; however, the intensity of the impact will be different. Sectors such as Banks, FMCG infrastructure, real sector and automobile, to name a few, are expected to see some impact," DK Aggarwal, Chairman and MD, SMC Investments and Advisors told Moneycontrol.
“A rate hike in coming months, if not in June, seems inevitable as global central banks, be it the US or other emerging markets are on interest rate hiking trajectory. Obviously, hike in interest rate by RBI would impact banks’ lending, capex, rupee and bond markets,” he said.
Rupee, which has been witnessing downside trend, may get a relief from the rate hike. Off late, Indian bond markets have witnessed its worst selloff where FIIs were smart enough to pull out money and place it in other Asian economies like Indonesia and Philippines, suggest experts.
“In my view, a 25 basis points rate hike in August is more or less discounted in the bond market hence, only a higher than 25 basis points (bps) hike will trigger fall in bond market considering this an unusual and aggressive stance by the Reserve Bank of India,” Ashok Mittal, Founder & CEO, Prest Loans told Moneycontrol.
“Rupee has been moving largely due to demand-supply factors, it has a good integration and correlation with the bond market. The fall in rupee is more related to crude and gold prices than rate hike by RBI at this moment,” he said.
Commenting on sectors in specific Mittal said, a rate hike would hit demand for two-wheelers, credit demand for the banking system and realty will become unattractive due to rise in lending rates.
We have collated a list of ten stocks from different experts which are likely to get impacted the most by a rate hike by the Reserve Bank of India (RBI):
Analyst: Ritesh Ashar, Chief Strategy Officer at KIFS Trade Capital
As real estate stocks are directly impacted by a rate hike and are considered as most sensitive ones to the changes in key rates stocks like DLF and Indiabulls Real Estate will be impacted in a negative way slowing down the growth rate.
The cash flow of DLF remained weak and there was also a major change in the profit of March’18 which came at Rs.37.7 crore as compared to Rs.4110.2 crore in December 2017.
The results of Axis bank were not impressive as the Gross NPA rose to 6.77 percent of the total loans at the end of the March quarter, from 5.28 percent in December.
The net NPA ratio worsened to 3.4 percent from 2.5 percent sequentially. And, now the rates are expected to increase it would be very tough for the stock to sustain at the current market rate.
SBI also gave negative results for the quarter ended March. The asset quality worsened because of fresh slippages which shot up to approximately 7.2 percent. The country’s largest bank reported a second consecutive net loss of Rs 7,718 crore for the March quarter, primarily due to a surge in provisions and bad loans.
The gross non-performing assets rose 14 percent sequentially in absolute terms to Rs 1,705 crore. Provisions for bad loans also increased to Rs 335 crore in March quarter, compared to Rs 236.2 crore in the previous quarter.
Analyst: Atish Matlawala, Sr Analyst, SSJ Finance & Securities
Both the two-wheeler names depend on finance to boost sales. Most of the two-wheelers are bought on finance and hence any increase in interest rate will certainly lead to lower sales.
Housing EMIs forms a large portion of household spend and thus new consumers will certainly defer their decision of buying a home in case of a rate hike.
Indiabulls Housing & DHFL has grown at a very fast pace in recent years and rate hike will certainly put brakes on advances growth for the company.
The company is the largest EPC player in the Indian infrastructure space. If RBI hikes interest rates than we may see a slowdown in the infrastructure sector and will result in drying up the new order wins for L&T.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.