Market experts turned bullish on rate-sensitive sectors like banks, auto and realty after the RBI on Tuesday enhanced the quantum of liquidity available with the banks even though it raised the repo rate by 25 bps.
Analysts say investors can look at buying into such sectors as the central bank measures are expected to bring down short-term rates in the near future. They, however, add that it is a bit early to speculate on the direction in which lending and deposit rates will head.
“The enhancement in domestic liquidity, coupled with the improving scenario in global liquidity, makes this a good time to take long positions in rate-sensitives. If the CPI-linked inflation eases due to the good monsoons, chances are that repo rate will not be hiked further in the current calendar year,” said Vinay Khattar, head (research), retail capital markets, Edelweiss.
In a similar context, Amar Ambani of India Infoline feels that the RBI measures are “likely to bring down short-term rates in the coming months”.
“Banks may or may not reduce their base rates. The borrowing rates for retail loans still remain high. Individual companies, such as Hero Motocorp, which do not heavily rely on financing for sales, are good bets. Mahindra & Mahindra can also see an uptick in its sales as rural demand is strong,” says the head of research of the domestic brokerage.
The benchmark Sensex gained 1.74%, or 358.73 points, on Tuesday to close at 20,929 — its highest close in the current calendar year. The rally was led by rate-sensitives with the BSE Bankex closing at its highest level since July 15. It gained more than 4% to close at 12,831. ICICI Bank closed at R1,075 or 6% higher than the previous day. SBI ended the day at R1,737 or 3.6% higher. Yes Bank (6.9%), Axis Bank (5.1%) and Bank of Baroda (4.2%) posted sharp gains.
The BSE Auto Index hit its lifetime closing high of 12,077 after gaining 2.4%. Among stocks, Tata Motors gained 1.1% at R381, Mahindra and Mahindra closed at R900 or 3.8% higher than previous day’s close and Hero Motocorp share was 3.2% up at R2,062.
Other rate-sensitive indices, including BSE Realty Index (1.9%) and BSE Capital Goods Index (1.1%) also posted smart gains. Among real estate developers, DLF share gained 2.5% to close at R149. Unitech closed at R17 after gaining 3.9%. In the capital goods