Interest sensitive stocks are in focus ahead of the Reserve Bank of India (RBI) fourth bi-monthly monetary policy which is scheduled around 11 am on Tuesday. (PTI)
Interest sensitive stocks are in focus ahead of the Reserve Bank of India (RBI) fourth bi-monthly monetary policy which is scheduled around 11 am on Tuesday. Most of markets are predicting that the RBI may go for a 25 basis points rate cut this time.
Since the beginning of the ongoing financial year most of rate sensitive sectors have been underperforming Sensex. The BSE Auto index and BSE Realty index plunged 12.59 per cent and 20.67 per cent to 17,015.39 and 1,341.88 on September 28. The BSE Bankex declined 8.27 per cent during the same period. The benchmark Sensex slid 9.35 per cent during April 1 and September 28 this year.
Vaibhav Agrawal, vice-president and head research, Angel Broking, said, “Rate sensitive sectors such as real estate, auto and infrastructure have all underperformed the broader markets while the banking sector has been a market performer. Auto sector underperformance has been on account of Tata Motors which has halved from its 52 week high led by the slowdown in China. Two wheeler demand has also been affected due to the rural slowdown. Real Estate index has corrected due to slowdown in demand and high leverage levels of some big players. Infrastructure sector has underperformed led by delays in major reforms such as Land Acquisition, GST and execution disappointment from some companies.”
In the early trade on Tuesday, the 30-share index was down around 1 per cent at 25,373 at 10 am. BSE Bankex, BSE Auto and BSE Realty were down 1.76 per cent, 1.71 per cent and 1.18 per cent, respectively.
Edelweiss explains how the market would react in three different scenarios of RBI monetary policy review.
A repo rate cut of 25 basis points with Hawkish commentary: If the RBI forecasts a rise in inflation in the future and keeps its inflation projections higher, the markets are expected to react negatively to an interest rate hike. The brunt of such negativity would be borne by banks, infrastructure stocks and other interest rate sensitives.
Rate cut with Dovish commentary: In case of a 25 basis points cut in RBI’s inflation projection and a clear accommodative tone the markets are expected to cheer the cut. A clearer communication regarding the direction of interest rates would be a significant positive for the markets.
No rate cut: In case RBI keeps its policy rate unchanged the market is expected to see a significant decline. This could have a serious price damage for interest rate sensitive stocks if this rate action is accompanied by a hawkish statement indicating heightened risk of inflation.
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