As RBI stands pat on rates, here are the top 10 rate-sensitive stocks to buy
Rate sensitive stocks have been doing well and auto and NBFCs are two prominent sectors which are likely to excel.
Kshitij Anand
Moneycontrol News
The Reserve Bank of India (RBI) on expected lines maintained its status-quo stance on policy rates at 6 percent in its fourth bi-monthly policy review on Wednesday. However, the central bank also cut SLR (Statutory Liquidity Ratio) by 50 bps to 19.5 percent from 20 percent.
The MPC decided to keep the policy rate unchanged. The MPC also decided to keep the policy stance neutral and monitor incoming data closely. The panel remains committed to keeping headline inflation close to 4 percent on a durable basis which leaves little room for a rate cut.
In the previous policy, the MPC had recommended a 25 basis point cut in the repo rate to 6 percent. Fall in growth to a three-year low and stagnant investment cycle raised a clamour for another rate cut.
On the domestic front, real gross value added (GVA) growth slowed significantly in the first quarter of 2017-18, cushioned partly by the extensive front-loading of expenditure by the central government.
The projection of real GVA growth for 2017-18 has been revised down to 6.7 percent from the August 2017 projection of 7.3 percent, with risks evenly balanced, RBI said in a note.
In August, headline inflation was projected at 3 percent in Q2 and 4.0-4.5 percent in the second half of 2017-18. But, RBI projects inflation to rise from its current level and range between 4.2-4.6 percent in the second half of this year, including the house rent allowance by the Centre.
"The neutral stance is very much consistent with the core objective of RBI that is to keep medium-term inflation in check at 4 percent,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.
“Policy has, of course, revised its Inflation projection at 4.2-4.6 percent in the second half of FY1718. Inflation has changed its trajectory to upwards and seems to have tapered off the base effect in August," he said.
Rate sensitive stocks have been doing well and auto and NBFCs are two prominent sectors which are likely to excel. NBFCs have been consistently outperforming the banking sector in business growth. They have also remained stable with respect to asset quality.
Auto companies have been in the limelight on the back of festive demand. However, there were GST-related concerns which could slowdown the demand. But record sales in the month of September signalled that the lean period is over.
Investors will be better off investing in stocks which can deliver strong returns irrespective of what RBI does in its next policy meeting in December.
We have collated a list of top ten rate sensitive stocks to buy both from a technical and fundamental perspective which are likely to do well:
Fundamental Picks:
Volumes of all automobile companies witnessed an uptick in September 2017, mainly due to a slightly earlier festive season. HMCL reported its highest ever monthly sales of 720,739 units up 7 percent YoY and 15.6percent MoM (in‐line with expectations), Year-to-date FY18 sales for HMCL are higher by 8 percent YoY.
"The benefits of the rural recovery are visible in the current fiscal for HMCL, while improved performance from models like Glamour and the scooters segment is expected after a subdued past few months, as supplier constraints get resolved ahead," Prabhudas Lilladher said in a note.
"With steady sales growth in FY18, cost pressures likely to recede, and price increases took to compensate for the rise in input costs in preceding quarters, the FY18 outlook for HMCL looks promising. We rate it an ‘Accumulate’," it said.
Maruti’s overall volumes for September 2017 at 163,071 units, up 9.3 percent YoY (on a high base), were broadly in line with analyst estimates. Domestic volumes grew nearly 10.3 percent YoY with a certain inventory push owing to the ongoing festive season, while exports dipped 1 percent on a YoY basis.
"With new launches enjoying high waiting periods and driving growth, we expect MSIL to continue its strong growth trajectory. Order backlog continues to be high for the new launches (Dzire, Brezza and Baleno) at ~1.5L units, although with production ramping up at the Gujarat plant, this is expected to come down," said Prabhudas Lilladher report.
"Over the long term, given the healthy product portfolio, sustained performance from existing models and good acceptance of recent launches driving market share gains, MSIL is expected to continue to be in a sweet spot in the domestic PV industry. We rate MSIL an ‘Accumulate’," it said.
Bajaj Auto's September 2017 numbers have been better than expectations. Total volumes (2W + 3W) grew by 13.8 percent. Domestic motorcycle volumes grew by 7.3 percent on a YoY basis, which is the highest growth in the last 12 months.
"The company in the earlier 10 months had reported decline in the domestic motorcycle volumes. The motorcycle exports grew by 20.5 percent YoY, this is the second month in a row when motorcycle exports have grown. Total motorcycle volumes in the month grew by 11.4 percent," Angel Broking said in a note.
"The surprise, however, was the 32 percent growth in 3W volumes which have grown in both domestic (37 percent growth) and export markets (25.5 percent growth). Total 3W volumes grew by 32 percent yoy which is the highest growth in the last 18 months. We maintain accumulate with a price target of Rs 3350," it said.
Ashok Leyland's September 2017 volumes were better than expected. Total volumes grew by 27.5 percent on a YoY basis to 15,370 units. MHCV volumes grew by 31.8 percent YoY to 11,804 units while LCV volumes grew by 15.3 percent to 3,566 units.
"The MHCV volumes have been growing by about 30 percent for the last two months indicating a robust demand for the BSIV compliant vehicles based on the new technology, iEGR," said the Angel Broking report.
"For the last two months, Ashok Leyland’s LCV volumes have grown by 14-15 percent whereas cumulatively between May 2017 to July 2017, the company reported 26 percent YoY growth indicating that LCV growth is slower in the past two months (August to September 2017). We maintain accumulate rating on the stock with price target of Rs 134," it said.
HDFC Securities recently met the management of Voltas Limited (VOLT). The discussion covered points like (1) Update on EMP projects in international and domestic markets, with potential improvement in the segment margin, (2) Pickup in inverter ACs, restocking post GST and the upcoming change in energy efficiency norms in the consumer AC segment and (3) Progress in the Arcelik JV w.r.t product launch timeline and management team.
"We are encouraged by healthy underlying demand in the consumer business, and VOLT’s focus on sustaining the project’s EBIT margin of 4-5 percent (aim to achieve 7 percent)," said the HDFC Securities note.
The domestic brokerage firm remains constructive on VOLT, given favourable macros in the AC industry and foray into other consumer durable categories will provide multi-year growth visibility. HDFC Securities expects a revenue/PAT CAGR of 14 percent each over FY17-20E and a target price of Rs 619.
Angel Broking maintains a buy rating on Karur Vysya Bank with a target price of Rs 180. Loan growth is likely to pick up after a sluggish FY17. Lower credit cost will help in strong bottom-line growth. Increasing share of CASA will help in NIM improvement.
Technical Picks:
Analyst: Mustafa Nadeem, CEO, Epic Research
DHFL is a Buy at current levels of Rs 551. The stock has given a rally of 200 points from 400 to 600. It has formed a Flag pattern which is a follow-through of a rally.
A breakout from Rs 550 levels may open the price targets of Rs 600 to Rs 650 in the near-term and Rs 700 in a little longer term. However, a close below Rs 520 will invalidate the pattern.
LIC Housing is a buy at current levels. The stock has made a classical Double Bottom pattern and has bounced after that. We may see higher targets of Rs692 in this stock in the near term.
Housing finance companies have one of the best mortgage portfolios since their collateral is the home itself. The Stop loss of Rs 605 can be maintained.
Repco is a buy for a short to long-term period at current levels of Rs 640. The stock has currently given a small breakout from its long drawn upper trendline and an ending diagonal pattern.
Repco Home is highly focused on under leverage self-employed home loan finance market. This breakout opens the door for Rs 695 and Rs 715. A stop loss can be maintained at Rs 600 on closing basis.
L&T Housing Finance
On Tuesday, the stock gave a gap-up opening but ended low due to profit booking. The stock looks good trading at the support of 55-days simple moving average on the daily chart.
It has made a Morning Star pattern with a red candle. The stock is a good buy at current levels with small stop loss of Rs 182.50 and strong support levels placed at Rs 190. Immediate targets would be Rs 200-207 in the short term.
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