Rate sensitive sectors are back in focus after the Reserve Bank of India (RBI) surprised market analysts on Tuesday and cut repo rate by 50 basis points to 6.75 per cent from 7.25 earlier. (Photo: PTI)
Rate sensitive sectors are back in focus after the Reserve Bank of India (RBI) surprised market analysts on Tuesday and cut repo rate by 50 basis points to 6.75 per cent from 7.25 earlier. Post the announcement, rate sensitive realty, auto, bankex and infrastructure stocks moved in green.
The BSE Realty, BSE Bankex, BSE Auto were trading 0.83 per cent, 0.55 per cent and 0.18 per cent up at 1,352.98, 19,701.01 and 17,045.96 in the afternoon trade (at 12.25 pm). Sensex was up 0.26 per cent at 25,683.14.
However, 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, at the same time.
Jimeet Modi, chief executive officer, SAMCO Securities said, “We believe today’s policy action will significantly drive faster transmission to the end borrower, it will drive urban consumption and will drive growth in the rate sensitive sectors. We believe sectors such as housing finance, consumer lending, private banks will do well over the next few quarters. It might still take a while for the investment cycle to pick up since that is also a function of government reforms.”
Murthy Nagarajan, head, fixed income, Quantum AMC, said, “Few in the market expected a 50 basis points cut in today’s policy. And it doesn’t end there, the RBIs inflation forecast of 4.75 per cent for Jan-Mar 2017 quarter suggests further room for rate cuts in CY 2016.”
Here are five rate sensitive stocks on which market experts are bullish on
Mahindra and Mahindra
Recommended By: Sharekhan
Why Buy: Considering the below-par monsoon for a second year in a row, Sharekhan expects the weakness in the tractor segment to persist in FY2016. Although a sharp decline in the second half of 2015-16 is not expected given the low base of last year, a meaningful recovery in the segment would be delayed to FY2017. Hence, the brokerage house has cut its tractor segment growth estimates for FY2016.
In a research note, Sharekhan said, “Consequently, our earnings estimates for FY2016 and FY2017 have been lowered by 6 per cent and 3 per cent, respectively. However, given the expectation of a pick-up in the UV volumes (on the back of new launches) and a recovery in the tractor industry in FY2017, we have maintained our Buy recommendation on the Mahindra & Mahindra stock with an SOTP-based revised price target of Rs1,450 (vs Rs 1,550 earlier).”
Axis Bank
Recommended By: Angel Broking
Why Buy: Axis Bank’s healthy branch expansion has not only helped it maintain low cost deposits (CASA at a healthy 43%), but also improve its mix of profitable retail loans to total loan book from 20 per cent to 40 per cent. Focusing on secured retail products has aided bank to maintain relatively better asset quality with Net NPA ratio at 0.48 per cent in 1QFY2016. It is well capitalized with Tier I capital adequacy at 12 per cent positioning it strongly for growth and market share gains as GDP growth revives. On valuation front, bank is trading at 2.0x FY2017 P/ABV.
Larsen & Toubro (L&T)
Recommended By: Angel Broking
Why Buy: L&T’s strong bid pipeline, robust order book, coupled with comfortable deb-to-equity ratio suggest that the company will be able to attain its FY2016 order inflow and top-line guidance. Using SoTP valuation methodology, the brokerage house arrive at FY2017E price target of Rs 2,013. L&T is a proxy play for investors wanting to ride on the Indian infrastructure growth story.
Ashok Leyland
Recommended By: Angel Broking
Why Buy: Ashok Leyland would be direct beneficiary of medium and heavy commercial vehicles (MHCV) upcycle from which it derives about 90 per cent of revenues. MHCV would be the fastest growing automotive segment over the next two years (Angel Broking expects 17 per cent CAGR volume growth over FY2015-2017), as the industry is likely to reach pre downcycle levels by FY2018. Strong volume growth coupled with operating leverage and reduced discounts is likely to increase profitability by 5 times for Ashok Leyland over the next two years.
State Bank of India
Recommended By: ICICI Direct
Why Buy: Among PSU banks, the brokerage house continue to stick to the largest bank as it is a proxy to the economy in the long term. Post capital infusion, its tier 1 ratio was at 9.6 per cent as on Q1FY16. In a research report ICICI Direct said, “We factor in credit growth in line with industry and plans to raise capital via QIP this year. Asset quality has now shown signs
of increased pressure with stressed assets ratio (NNPA+ Std RA) at 6.5 per cent. We review our estimates and valuation and revise both lower to arrive at a target price of Rs 300 valuing the core book at 1.4x FY17E ABV and add Rs 44 for associate banks & subsidiaries (life and general insurance, AMC,etc) against Rs 374 earlier. We maintain ‘BUY’ for long term.”
(Disclaimer: The stocks are recommended by the respective brokerage houses and not a recommendation from Financial Express online)
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