The Monetary Policy Committee (MPC), on expected lines, slashed the repo rate by 25 bps on June 6 as the growth in the gross domestic product (GDP) moderated to a 21-quarter low in Q4FY19. The Committee also changed the stance to ‘Accommodative’.
RBi finds sharp slowdown in investment activity along with a continuing moderation in private consumption growth a matter of concern.“The headline inflation trajectory remains below the target mandated to the MPC even after taking into account the expected transmission of the past two policy rate cuts,” RBI said in a note.
“Hence, there is scope for the MPC to accommodate growth concerns by supporting efforts to boost aggregate demand, and in particular, reinvigorate private investment activity, while remaining consistent with its flexible inflation targeting mandate,” it said.
A rate cut generally augers well for companies which are debt-laden (as it reduces interest cost), and banks as well as NBFCs as it brings down the cost of funds for them. For the real estate sector, a fall in interest rates could also mean lower EMIs.
“In terms of the sectors, real estate, NBFC, banking and auto would be key beneficiaries of rate cut where a temporary uptick can be seen in many stocks but quality stocks will continue to outperform,” Parth Nyati, Co-Founder and COO, TradingBells told Moneycontrol.
Atish Matlawala of SSJ Finance & Securities said that rate cut will benefit banks as they will be able to bring down the cost of funds and pass on the benefit to the borrowers.
“Another sector that we believe will benefit from rate cut is real estate as rate cut will bring down home loan interest rate. This will lead to lower EMIs, which will bring a positive impact on the sector's growth. We like Godrej properties and DLF,” he said.
We have collated a list of top 10 rate sensitive stocks that could benefit the most from the rate cut: Analyst: Parth Nyati, Co-Founder and COO, TradingBells. Ujjivan Financial Services:
Ujjivan is among the few NBFCs that posted better than expected results whereas there are major changes of key personnel at Ujjivan which is a positive sign for the company.
Any significant step to solve the NBFC problem will lead to a rally in quality NBFCs like Ujjivan and Bajaj Finance. A rate cut will certainly auger well for the business and the company.
Axis Bank and SBI:
Corporate Banks are the theme of the current bull run as NPAs are showing a decline on a quarterly basis and the outlook for growth is visible as a rate cut cycle has begun. This is where Axis Bank and SBI could lead the rally.
After a painful period, the auto sector may see some revival as liquidity crisis may be resolved soon and capex cycle is likely to improve after a stable government comes into the power.
Ashok Leyland could do well as it is focusing on electric vehicle segment and the government may announce major tax benefit for this segment in the upcoming budget.
Analyst: DK Aggarwal, Chairman & Managing Director of SMC Investments & Advisors Federal Bank:
The bank’s business grew strongly and management has focused on retail banking, which would continue to give strong, balanced credit growth and improvement in asset quality.
The bank is empanelled in 15 states and is catering to 200 government entities. New partnerships in the general insurance sector with Tata AIG and HDFC Ergo will augment fee income.
The bank has also opened new call centres for cross-selling products like credit cards, insurance and is likely to extend exclusive support to ultra HNI. Non-resident customers would also help Federal Bank to increase other income.
LIC Housing Finance:
The Company has registered improvements on both margins and asset quality. The management of the company is confident of further improvements in all operational areas in the coming years.
Given the positive push by the government, housing finance is perceived as the most lucrative sector in the current times, which is elevating the competition within the sector.
The company looks forward to maintaining this growth journey with a focus on healthy asset quality, cost improvement and better market presence across India.
With domain expertise, strong financial capability, quality product and a strong customer focus, the company is well placed to cater to this demand and grow consistently in the coming years.
Despite the challenging macro-environment, its sales volume and total sales value have grown by 18 percent and 16 percent, respectively, during the calendar year 2018 vis-a-vis the calendar year 2017.
The company plans to continue launching new projects in the current financial year and aims to again clock double-digit growth in terms of sales volume and value.
The company business strategy moves for continued emphasis on high-end, upscale accommodation through the existing The Oberoi and Trident Hotels.
The company has been able to do selective expansion in both the five star deluxe and five-star segments of the Indian hotel industry by participating in the development and management of new hotel properties in destinations where it sees significant opportunities.
The company aims to build healthy foods, premium hair nourishment and male grooming into growth engines of the future and expects to deliver value growth at 20 percent plus CAGR over the medium term in these portfolios.
The company retains the target of 8-10 percent volume growth and healthy market share gains in the India business.
The company aims for a topline growth of 13-15 percent (depending on inflation) over the medium term. The company will continue to invest in developing new countries and scale the business profitably.
Analyst: Atish Matlawala, Sr Analyst, SSJ Finance & Securities. RBL Bank:
RBL Bank reported strong earnings for the quarter ended March. It reported a 38.77 percent increase in its March quarter net profit to Rs 247 crore, due to higher net interest and other income.
The bank saw better-than-expected net interest income (NII) growth as well as stable asset quality even as net interest margin (NIM) improved on a sequential basis.
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