The Reserve Bank of India (RBI) on expected lines decided to keep policy rates unchanged on Thursday but narrowed the liquidity adjustment facility (LAF) corridor. The reverse repo rate under the LAF now stands at 6 percent.
Benchmark indices pared losses led by short covering after the central bank decided not to tinker with cash reserve ratio (CRR) which was looking like a possibility as banks are flushed with excessive liquidity.
“The first reaction and the magic words which I heard was no action on cash reserve ratio (CRR). While nobody really was expecting it, there was always a fear of that overhang. Maybe third time lucky for bond markets,” Anant Narayan, Standard Chartered Bank said in an interview with CNBC-TV18.
“The RBI raised reverse repo rate from 5.75 percent to 6 percent which could confuse markets in the short run, but in reality, it is not very negative. It is definitely not as negative as a CRR hike would have been,” he said.
The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged in this review while persevering with a neutral stance.
“The RBI maintains its neutral stance and we expect it to continue with the same atleast in the near-term. The key issues for RBI in FY18 are to address the NPA menace and define measures to help credit growth, which has been under severe strain,” Siddharth Purohit, Sr. Equity Research Analyst, Angel Broking Pvt Ltd told Chillicious.com.
“However, we continue to like the Housing Finance space and large banks from medium term perspective. Among large banks, we like ICICI Bank and among HFCs we like Dewan Housing Finance and REPCO Home Finance,” he said.
The future course of monetary policy will largely depend on incoming data on how macroeconomic conditions are evolving, said the MPC statement.
It further highlighted that although banks have reduced lending rates, but there is further scope for a complete transmission of policy impulses remains, including for small savings/administered rates.
Allowing banks to invest in REITs is a big positive for realty stocks. DLF, Prestige Estates, Unitech, and Godrej Properties surged up to 4 percent after the policy announcement.
In the wake of any likely fall in interest rates, we collated a list of ten stocks which are likely to remain in focus with an investment horizon of 8-12 months.
Analyst: Vinod Nair, Head of Research at Geojit Financial Services.
Ujjivan Financial Services:
Any fall in interest rates will boost demand for SME and individual loans. Borrowings are the major source of funds for Ujjivan, and any cut in interest rates would bring the cost of funds lower and help to expand margins.
Lower interest rates will also improve the demand for new loan product verticals under the Small Finance Bank business.
Maruti Suzuki India:
Given the leadership position in the domestic passenger vehicles (market share 52 percent), the robust product pipeline and strong pricing power, we remain upbeat on the stock owing to the reduction in the interest rates that can lead to increase in discretionary spending.
Asian paints (APNT), is the market leader in the Indian paint manufacturing industry with a market share of 53 percent. Reduced interest cost along with Increase disposable income, the rise in urbanization will scale up the consumer’s aspiration for a better lifestyle which will drive the growth of the paints sector.
Havells India (HAVL) is a leading player in electrical consumer goods in India. With any fall in interest rate, HAVL is likely to benefit from a pick-up in real estate sector which is expected to boost sales of its cables & switchgear business.
Further, HAVL consumer appliance business is expected to benefit from a revival in consumer discretionary spending due to improvement in disposable income.
HDFC Bank has the best-in-class liability franchise and is a first-mover among private banks to expand to rural and semi urban areas. Lower interest rates will be a boost to the Urban and Rural consumption sector and puts HDFC bank in a comfortable position to benefit from any demand uptick in these segments.
Analyst: D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd
JK Tyre & Industries:
The company has good fundamentals and the management is focusing towards the reduction of its debts. Its plants are world benchmarks in water consumption with zero waste, and 36 percent of its energy consumed is renewable. It is a high-recall and trusted brand since last four decades.
The company has made an investment of Rs 4,500 crore from establishing a state-of-the-art all radial plant in Chennai to brownfield expansions across facilities and finally acquisition of new facilities of Cavendish.
The company enjoys a global leadership position in textiles as well as carries an unmatched domestic portfolio of apparel brands and retail formats. Lower investments in brands and repositioning of “Unlimited”, management of the company expects the operating margin to improve in near term.
Company’s capability in manufacturing garments, coupled with its positioning of the most preferred franchisee/distribution partner in India, it is poised to benefit from an increase in demand for apparels.
Ahluwalia Contracts (India):
The government’s focus on social and urban infrastructure would result in healthy order pipeline and other key positive for the company is the additional revenue from lease rentals from the Kota Project.
Moreover, in the coming few years, it is looking at reducing its debt and even the company is expecting to make a debt-free company in the long run, which would improve the balance sheet position and increase profitability levels, going forward.
Further, margins are also expected to improve driven by a higher proportion of government orders, better-operating efficiencies along with better utilizations of capital equipment.
Indian Hume Pipe Company:
The company is one of the few pipe companies to have a recognized R&D division which is responsible for implementing a strict and uniform quality control process on all its manufacturing units.
The company has an excellent track record as a contractor for successfully executing water supply, sewage, irrigation and power projects (piping).
In the field of water supply IHP has completed a number of prestigious turnkey projects involving various stages of a project such as Intake Well, Pumping Station, Main pipeline, Water treatment plant, Reservoirs, Distribution pipelines.
State Bank of India:
The bank has been consistently delivering on improving asset quality, cost efficiency, other income and productivity in the past quarters. Moreover, with the support of favorable market condition, it has posted strong growth in treasury income and foreign exchange earnings driven by Iranian oil payments going through the bank.
In addition to that, Government of India initiatives to support PSUs in terms of capital allocation, a mechanism to deal with bad assets, the formation of bankruptcy law and setting up of the stressed assets fund under National Infrastructure Investment Fund would give next leg of potential growth.
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