Rate sensitive shares tank; analysts prefer to ride out the storm

Since September 2018, Realty (down 23%), Auto (16%) and Finance (14%) indices have underperformed the market by falling over 13%, as against 8% decline in the benchmark indices

Shares of rate sensitive stocks such as automobiles, finance and realty companies were reeling under pressure with all these sectoral indices hitting their fresh 52-week low on Thursday. 

While the market sentiment, especially in the banking and finance segments, had already turned sour given the developments in IL&FS, YES Bank, Dewan Housing and Indiabulls Housing, analysts say the lower-than-expected sales figures for September dented investor confidence in auto stocks. That apart, the fear of a hike in interest rate by the Reserve Bank of India (RBI) also saw investors shy away from rate sensitives.

“Lower-than-expected sales figures for September dented sentiment in the auto segment, while the developments in YES Bank, Dewan Housing and Indiabulls Housing saw investors dump stocks in the banking and finance segment. That apart, raise rates are on a rise and this will again impact the fortunes of rate sensitives. I would prefer to wait and ride out the storm before committing fresh capital,” says G Chokkalingam, founder and managing director at Equinomics Research.

Since September 2018, Realty (down 23 per cent), Auto (16 per cent) and Finance (14 per cent) indices have underperformed the market by falling over 13 per cent, as against 8 per cent decline in the benchmark indices.

Shares of most of the frontline auto and auto ancillary companies such as Hero MotoCorp, Maruti Suzuki India, Eicher Motors, Apollo Tyres, Ceat and Motherson Sumi Systems are trading at their fresh 52-week lows on concerns of a slowdown in demand due to rising crude oil and commodity prices, especially petrol and diesel. DLF, Oberoi Realty and J Kumar Infraprojects from realty space, too, hit their respective fresh 52-week lows on Thursday.

Dewan Housing Finance Corporation (DHFL), YES Bank, Central Bank of India, Bandhan Bank, Bank of Baroda, Reliance Capital, Indiabulls Ventures, SREI Infrastructure Finance, PNB Housing Finance, IIFL Holdings, Edelweiss Financial Services and Reliance Nippon Life Asset Management from the financial sector have tanked over 30 per cent since September amid the ongoing crisis at the Infrastructure Leasing and Financial Services Ltd (IL&FS).

“We believe that September 2018 wholesale volumes need to be seen in light of the timing difference of the festive season this year vis-à-vis the last year, as reflected in the decline in tractor and PV volumes. However, two-wheeler volumes benefited from inventory build-up ahead of the festive season,” says Gautam Duggad, head of research at Motilal Oswal Securities.

Duggad prefers passenger vehicles (PVs) / commercial vehicles (CVs) over two-wheelers due to their stronger volume growth and a stable competitive environment. His top picks in autos are Maruti Suzuki and Motherson Sumi among large-caps, and Ashok Leyland and Exide Industries among mid-caps; and considers Mahindra & Mahindra as the best proxy to play the rural theme.

Meanwhile, the six-member Monetary Policy Committee (MPC), is likely to hike rates by 25 basis points (bps) hike to counter the impact of rising oil prices on inflation. If the RBI raises the interest rate on Friday, it would be third in a row.

“The tone would be accommodative. There could be an upward revision in the inflationary projections for the year on account of higher oil prices, increase in MSPs and imported inflation (on back of rupee depreciation). The August policy projected CPI inflation of 4.8% for H2FY19,” CARE Ratings said in a note.