Rate-sensitive sectors on a strong run since RBI's 40 bps repo rate cut

Rate-sensitive sectors have bounced back strongly in recent weeks following the Reserve Bank of India's (RBI) rate cut, outperforming the benchmark Sensex.

The BSE Realty has gained over 29 per cent in one month, since the 40 basis points repo rate cut by the RBI. The move brought the repo rate to 4 per cent, which is the lowest since 2000. In the same vein, the BSE Auto has gained 20.5 per cent, while the BSE Bankex has clocked in gains of 20.57 per cent. The 30-share Sensex has given returns of 15.02 per cent in the one-month period.

The outperformance seen by rate-sensitive sectors has surprised market participants. “The auto and realty sectors have been the most vulnerable to the economic uncertainty amid the Covid-19 pandemic. The rally may not be sustainable going forward,” said G Chokkalingam, founder and managing director of Equinomics Research and Advisory. Market experts say banking stocks would continue to face headwinds as credit offtake is likely to remain weak in the current environment, and concerns over asset quality remain. For the realty sector, the debt burden and labour shortage are likely to be key challenges.

The auto sector is seeing some green shoots, though analysts say meaningful recovery is unlikely in the near- to medium-term. “In light of the Covid-19 pandemic, we expect industry volumes to fall 20 per cent in FY21, which would rebound strongly with 35 per cent and 8 per cent growth in FY22 and FY23, respectively,” analysts at Reliance Securities said in a note.