Rate sensitive shares gain on rate cut hopes post July WPI data

Canara Bank, Bank of India, Punjab National Bank, IndusInd Bank and Bank of Baroda up more than 4% each.

Shares of rate sensitive sectors such as realty, banking and auto were trading higher after the Wholesale Price Index (WPI) extended its deflationary trend for ninth successive month, raising hopes that the Reserve Bank of India (RBI) may lower key policy rates.

Annual wholesale prices continued to decline for the ninth consecutive month in July.  Official data released on Friday showed the WPI contracted further 4.05% in July compared with decline of 2.4% in June. CLICK HERE TO FULL REPORT.

At 12:29 PM, the banking shares index Bank Nifty (up 2.1%), auto index CNX Auto (1.7%) and real estate companies index CNX Realty (4.5%) were up more than 1.6% as compared to 1.6% rise in the benchmark CNX Nifty.

Canara Bank, Bank of India, Punjab National Bank, IndusInd Bank and Bank of Baroda from banking up over 4% each on the National Stock Exchange (NSE).

DLF, Housing Development and Infrastructure (HDIL), Delta Corp, Oberoi Realty and Indiabulls Real Estate from realty gained more than 3% each, Eicher Motors, Bajaj Auto and Mahindra & Mahindra from auto up between 2%-3%.

Earlier, this week, the consumer price index (CPI)-based inflation declined to an eight-month low of 3.78% in July from nine-month high of 5.4% in June as the rate of price rise declined sharply in food items.

Jay Shankar, Chief India Economist at Religare Institutional Research said, While the improved industrial production (IIP) and inflation numbers provide headroom for a rate cut in the Monetary Policy Review on 29 September, much will depend on the sustainability of these numbers along with other factors such as economic development in the US, progress and distribution of the monsoon in India, and devaluation of the Yuan.

In particular, Yuan’s devaluation and its implications for global currencies and for India’s trade deficit with China, and a weakening INR have altered the degrees of RBI’s freedom in setting the policy rate, analyst said in a report.

“On the back of the 2% depreciation of the Yuan against the USD, we expect the Federal Reserve Bank to defer its lift off till December ’15. Thereby, the RBI could be expected to lower the repo rate by 25 bps at its next policy meet,” according to CARE rating.