Market turns bullish on rate-sensitive stocks

Banking, infra, auto and realty shares witness aggressive buying

Rate-sensitive stocks will do well with the Reserve Bank of India (RBI) ushering in an interest-rate easing cycle, according to market players. Stocks in the banking, automobile, infrastructure, and real estate space saw aggressive buying on Thursday, after RBI unexpectedly reduced its policy rate by 25 basis points. Investors sold their fast-moving moving consumer goods, pharma and information technology shares to invest in cyclical stocks after the RBI move, experts said.

“RBI had already indicated that once the policy starts reversing, it would continue in that direction. If it is indeed the start of an interest-rate cut cycle, one should be positive on financials, automobiles, cement, capital goods and other such rate-sensitives,” said Prateek Agarwal, business head and chief investment officer at ASK Investments. He oversees Rs 4,000 crore of equity investments.

On the BSE, the realty sector index climbed the most by eight per cent, followed by the financial stocks index (up 3.3 per cent), capital goods (2.4 per cent), and the auto index (up 2.1 per cent). The BSE Sensex was up 728 points or 2.6 per cent for the day, while the National Stock Exchange’s Nifty climbed 216 points or 2.6 per cent.

The cut in interest rates is expected to revive demand among investors, leading to higher consumption and credit growth. Companies in the real estate, banking and automobile sector had been languishing as consumption remained weak on account of high inflation and high lending rates. Experts feel rates should be cut sharply from the current levels.

“We are not surprised by the direction taken by RBI. It was expected sooner than later...(but) interest rates will have to be significantly lower for there to be a big impact on balance sheets,” said Ramesh Damani, member, BSE.

Within the banking sector, however, analysts continue to remain more optimistic about private sector banks than public sector lenders, especially larger ones.

“As of now, we prefer tier-I banks to tier-II banks, where the asset quality concerns continue to worry. Tier-II banks will take some more time to catch up,” said Pankaj Pandey, head of research at ICICI Securities.

According to analysts, the rate cut will benefit the realty sector in both building and sales. While the rate cut will help bring down realty firms’ debt, it could also push up demand for real estate properties.

“Nowhere in the world are you getting this combination of growth and a cut in interest rates. This combination will work well for equities,” said Agarwal of ASK Investments.

Almost all stocks in the real estate, automobile and banking spaces ended positive on Thursday.