The Reserve Bank of India's slashed rates for the fourth time in a row on August 7, but this time, it was an unconventional 35 bps cut as it maintained an "accommodative" stance.
The move is aimed at kick-starting the investment cycle, stimulate demand and increase liquidity in the NBFC sector.
“The RBI has demonstrated boldness by an unconventional reduction of 0.35 percent or 35 bps cut, showing an urgent need to take pressure off the bond markets and reduce the cost of capital in the economy to kick start the investment cycle from the private sector,” Jimeet Modi, Founder & CEO, Samco Securities, told Moneycontrol.
“Increasing the bank exposure limit to a single NBFC from 15% to 20% is indeed RBI’s way of managing the current crises, thereby addressing the liquidity squeeze caused by the NBFCs. The policy will genuinely percolate liquidity into the system giving immediate relief to the economy.”
A rate cut usually helps companies or stocks that are highly leveraged as well as banks and NBFCs. It will help companies with lower interest payments and lower EMI for borrowers if the banks pass on the benefit to customers.
For banks and NBFCs a rate cut brings down the cost of funds. For the real estate sector, a fall in interest rates could also mean lower EMIs.
Transmission of rates to the end-user, though, has been a concern for the central bank. However, recently many public and private sector banks slashed their MCLR rates by 5-20 bps.
“The direct beneficiary of RBI rate cut are the banking and NBFC sectors; lower interest rates could fuel credit growth going forward. Besides, other sectors such as auto, realty and construction can also benefit from the rate cut,” Ajit Mishra, VP, Research, Religare Broking Ltd, told Moneycontrol.
Here is a list of top 14 stocks that experts say are likely to benefit the most from the rate cut: Analyst: Ajit Mishra, VP, Research, Religare Broking Ltd Ashok Leyland, Maruti Suzuki India:
The auto sector has underperformed the benchmark indices significantly over the last few months on the back of demand slowdown and regulatory changes, which has sharply impacted the financial performance of auto companies.Hence, a rate cut could provide some relief and improve the volume trajectory of auto original equipment manufacturers (OEMs). Further, it will help revive liquidity and improve capex (capital expenditure) for the companies as well.
State Bank of India, HDFC Bank, ICICI Bank:
A rate cut would bring down the cost of funds, help in recovering credit growth, and also help improve the quality of assets, leading to a decline in NPAs.
Further, it would help revive growth and bring financial stability among the banks. We believe this can definitely boost sentiments and also revive capex and growth on the ground levels if the banks pass on the cut to borrowers.
Analyst: Umesh Mehta, head of research, SAMCO Securities UltraTech Cement, Godrej Properties, Power Grid, Larsen and Toubro, Hatsun Agro:
A rate cut by the RBI is likely to impact those companies the most that are highly levered and have debt to equity levels of 1 to 2 times. Real estate, power, cement and infrastructure are sectors which are rate sensitive, and given the slowdown and liquidity problems, are in urgent need of boosters.
A rate cut will help shake things up in these stocks and boost confidence. However, if global panic sets in and there is a flight from risk capital, it may have ripple effects in India too. In that case, stocks can come in line with the global carnage.
Analyst: Romesh Tiwari, Head of Research, CapitalAim
Any rate cut by RBI along with other measures to transfer the benefit to end-users will help the liquidity issues of interest rate-sensitive sectors like automobiles, real estate, and consumer durables and will help to revive the declining demand. Some of the stocks that can use the rate cut are:
The infusion of capital from the promoters group is positive from the investors perspective. The stock is sensitive to rate cuts and can use cuts in lending rates to increase demand and better cashflow.
The demand from the rural areas is likely to increase, with finance rates coming down and good recovery in monsoon.
The demand in rural sectors is suffering due to slow down and liquidity issues. If the lending rates come down, we may see some consolidation in the stock’s prices before it starts reversing.
Company’s management is optimistic about growth in domestic demand and can use the decrease in rates for cost optimisation for installing newer plants and decrease in logistics cost.
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