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Bank, auto, realty stocks bear brunt of RBI surprise

Interest rate sensitive stocks were the worst hit on Friday after Raghuram Rajan surprised the market with a hike in repo rate.

Interest rate sensitive stocks were the worst hit on Friday after the Reserve Bank of India (RBI) governor Raghuram Rajan surprised the market with a 25 basis points (bps) increase in the repo rate. The BSE Bankex was down more than 5%, while BSE Realty and BSE Auto shed 6.53% and 1.58%, respectively.

With the increase in the repo rate, analysts now expect state-owned banks to increase their lending rates, as most private sector banks have already hiked their rates. On Thursday, State Bank of India (SBI) hiked its base rate by 10 bps. The recent past saw lenders like ICICI Bank, Axis Bank, HDFC Bank and Yes Bank increasing their interest rates.

?PSU banks by and large have not hiked the interest rates, even as private sector players have done so. The monetary policy indicates lower short-term lending rates and higher long- and medium-term rates. The 10-year yield is also likely to rise. We expect normalcy to return six months down the line,? said an analyst on conditions of anonymity.

Apart from the hike in repo rates, the central bank has cut the MSF, or overnight lending rates, to 9.5% from 10.25% and also the minimum daily maintenance of CRR from 99% of the requirement to 95%. While this will ease some pressure on banks and funding costs, liquidity is expected to remain tight in the coming months. According to analysts, this will mean that banks, which are dependent on wholesale funding will remain under pressure.

?Banks like ICICI, SBI and HDFC are relatively better placed to deal with this hike. Lenders such as Yes Bank and ING Vysya, which rely on wholesale funding, would see the worse impact. However, the policy should be seen as positive for markets as there is more certainty over the rates. The policy seems to be moving towards flattening of the yield curve,? said another analyst.

The rise in the rate at which RBI lends to banks comes two days after the US Federal Reserve decided against any kind of tapering in its stimulus programme. Friday saw the benchmark Sensex shedding 383 points after Thursday?s gain of 685 points. Among the bank stocks, ICICI Bank (-4.8%), SBI (-3.4%), Yes Bank (-7.9%), HDFC Bank (-3.6%) and PNB (-7.3%) were the prominent losers.

Meanwhile, realty players like Unitech (-6.2%), DLF (-11.5%), Anant Raj (-8.2%) and HDIL (-8.5%), saw heavy selling. DLF saw its highest single-day fall in nearly five years. Among the auto majors, Tata Motors (-2.84%), Hero Motocorp (-2.82%) and Bajaj Auto (-2.87%) all ended in the red. While most rate sensitives lost heavy ground on Friday, experts believe that the stocks could see some more near-term correction. In the current calendar year, rate-sensitives have been under pressure with BSE Realty and BSE Bankex losing 39% and 15.2%, respectively.

?We don?t expect the rate hike to have a major impact on the cyclicals. However, we remain underweight on banks as we feel they are cyclically and structurally challenged,? said Saurabh Mukherjea, CEO, Institutional Equities, Ambit Capital.

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First published on: 21-09-2013 at 03:28 IST
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