Most rate sensitive stocks shrug off RBI policy decision to end higher

Most rate sensitive stocks from auto, banking and realty sectors recovered after falling up to 3% in intraday trade after the Reserve Bank of India (RBI) maintained status quo on interest rates in its sixth monetary policy review of financial year 2016-17.

RBI's six-member Monetary Policy Committee (MPC) headed by governor Urjit Patel kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at

6.25%.

Repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.

Reacting to the policy announcement, the Nifty Bank shed over 1% in intraday deals, but settled the day 0.4% down. PNB, Axis Bank, Bank of India and Kotak Bank slipped anywhere between 0.6% and 1.5%, while YES Bank, Federal Bank, HDFC Bank, Bank of Baroda and SBI ended in positive terrain.

Nifty Realty pared all its losses to end 0.7% higher, led by gains in Prestige, Indiabulls Real Estate, Unitech, DLF and HDIL, which rose up to nearly 3%.

Nifty Auto, meanwhile, added 0.6% to settle the trade at 9,994. MRF, Bosch, Apollo tyres, Ashok Leyland and M&M were the top movers on the index.  

Outlook

“Although the rate cut of at least 25bps was widely expected, I would say RBI took a right decision because it is more important to have rupee in shape. I believe RBI will maintain status quo even in April policy review because otherwise we would lose our arbitrage advantage in comparison to other emerging currencies if bond rates come down further,” said AK Prabhakar, head of research at IDBI Capital Markets & Securities.

G Chokkalingam, Founder, Equinomics Research & Advisory maintains cautious outlook on the realty stocks, while remains neutral on the auto and banking stocks.   

“We remain worried on the real estate sector because of the oversupply, budget discouragement for investment in second home and the impact of remonetisation on black money generation and therefore, on demand for real estate, going forward,” said Chokkalingam.

“We are neutral on banking and auto sector, but believe select stocks like M&M and Axis Bank are trading at better valuation,” he added.  

Prabhakar of IDBI Capital noted that because of the flush of liquidity following demonetisation, transmission of previous rate cuts has already happened. 

“I do not see major impact on rate sensitive stocks. Now election verdict will be more important than any other factor in the short-term,” he said.