Rate sensitive stocks slip ahead of RBI policy

Bank of Baroda, IndusInd Bank, Kotak Mahindra Bank and Canara Bank lost between 0.6% to 1.5% in morning trade on the NSE

Interest rate sensitive stocks – banking, autos and realty – are trading weak ahead of the Reserve Bank of India’s (RBI’s) review of the monetary policy later in the day today.

Key indices - Bank Nifty (down 0.3%), CNX Auto (down 0.1%) and CNX Realty (down 0.5%) – lost ground ahead of the policy review. By comparison, the CNX Nifty is trading lower by 0.5% at 8,390 levels at 10am after touching a high of 8,445 levels in intra-day deals.

Among individual stocks, Bank of Baroda, IndusInd Bank, Kotak Mahindra Bank and Canara Bank lost between 0.6% to 1.5% in morning trade on the National Stock Exchange (NSE). Hero MotoCorp, Apollo Tyres, Bajaj Auto and Maruti Suzuki; Prestige Estates, Sobha, Indiabulls Real Estate and Delta Corp from the realty pack are some of the top losers in the auto and realty sectors, respectively.

POLICY EXPECTATION

Analysts expect the RBI to slash repo rate by 25 basis points (bps) while reviewing the monetary policy today.

"Inflation is falling, however you slice the data. WPI has been in the negative terrain for the last 6 months. And CPI inflation has halved since December 2013 despite a series of weather events. The combination of sluggish growth and falling inflation provides an opportunity for a 25bp rate cut now,” said Pranjul Bhandari, chief India economist at HSBC in a recent report.

“Monetary easing in the region (especially China) and just a few months to go before a possible Fed exit ties RBI's hands (somewhat) are additional reasons why the central bank should cut now," he adds.

Indranil Sen Gupta, India economist at Bank of America-Merill Lynch (BofA-ML) also expects the RBI to cut rates by 25 bps on Tuesday, pause for the Fed rate hike they expect in September and cut 50 bps again in early 2016.