Investors can safely park their money in stocks which are likely to get less impacted by fluctuation in interest rate movement, suggest experts
Kshitij Anand
@kshanand
Kshitij Anand
Moneycontrol News
Moneycontrol News
The Reserve Bank of India (RBI) on Thursday maintained its status-quo stance on rates, and cautioned for a higher inflation trajectory in the coming months.
The projected CPI inflation for 2018-19 is revised to 4.7-5.1 percent in H1:2018-19 and 4.4 percent in H2, including the HRA impact for central government employees, with risks tilted to the upside, RBI said in the statement.
On the rates front, the Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 percent.
Consequently, the reverse repo rate under the LAF remains at 5.75 percent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 percent.
The MPC decided to keep the policy repo rate on hold and continue with the neutral stance. The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 percent on a durable basis, RBI said in a statement.
The RBI decision on rates was dictated by two factors, one is how inflation pans out during the year and rising crude oil prices will also have some bearing on the markets.
Investors can safely park their money in stocks which are likely to get less impacted by fluctuation in interest rate movement, suggest experts.
“Broadly, banks, NBFCs, realty companies and auto companies would qualify as rate sensitives. Since there is a possibility of the RBI adopting a hawkish tone in the April policy, the focus will be on stocks that are likely to be largely immune to a rise in interest rates,” Jaikishan Parmar, of Angel Broking told Moneycontrol.
“An investor can track HDFC Bank and IndusInd Bank among the banking pack; Bajaj Finance in the NBFC space and Maruti Suzuki and Eicher Motors in the automobile space,” said Parmar.
Gaurav Dua, Head of Research, Sharekhan told Moneycontrol that he does not see any impact on the fundamental structural growth story of retail-focused private sector banks and some select NBFCs. “Accordingly, our picks are HDFC Bank, Kotak Mahindra Bank, IndusInd Bank, RBL and Bajaj Finserv,” he said.
With inflation inching up in the rest of 2018, most analysts expect the central bank to raise interest rates in the next 12 months. There is a distinct possibility that the 150 percent MSP will have an impact on food inflation even crude oil could put pressure on secondary level inflation.
“RBI is expected to keep rates unchanged for the rest of this year but can see a hike in rates by next year first half. Expected to raise interest rates as inflation pressure starts building,” Ritesh Ashar, Chief Strategy Officer at KIFA Trade Capital told Moneycontrol.
“With growth-inflation data likely to be higher after April, we believe there is a risk of hike in rates can be seen in second half and much likely expected in 1st half of next year,” he said. According to projections, inflation is likely to be around 5.1-5.6 percent for the first half of the 2018-19 fiscal year, before landing to 4.5 percent.
Here is a list of top 10 rate sensitive stocks which could prove to be a stong long term bets:
CLSA maintains a buy rating on Eicher Motors with a target price of Rs 39,300. The announcement of capacity expansion indicates growth visibility. The company also announced guidance of 950K units for FY19 which is 6 percent higher than nameplate capacity.
The new capacity should come on-line by 2HFY20, said the CLSA note. The global investment bank sees 15 percent volume CAGR over FY19-21. It raised FY19CL EPS by 3 percent and retain buy rating on the stock.
HSBC upgraded Hero MotoCorp to buy from hold and raised its target price to Rs 4,200 from Rs 3,800 earlier. The recent correction in the stock price warrants positive stance.
With revival in rural markets, Hero is likely to remain the key beneficiary of the rise in demand. Hero’s operational parameters are among the best in sector, said the HSBC note. The stock looks relatively cheap and the risk reward is still favourable.
BofA-ML maintains a buy recommendation on Motherson Sumi with a target price of Rs 420. The Reydel acquisitions strengthens the interiors vertical. The global investment bank expects synergies across clients and geographies.
The deal is likely to provide more avenues for in-sourcing and margin improvement, and the deal appears inexpensive and EPS accretive, the note added. The acquisition is likely to take Motherson one step closer to meet FY20 revenue target.
Antique maintains a buy call on NBCC with a target of Rs 276. NBCC’s order backlog has swelled to an all-time high. NBCC’s competitive edge is protected by legislations.
Antique expect 63 percent CAGR of revenue. The revenue recognition is clustered around FY20. But, the current valuation looks attractive.
Citigroup maintains a buy rating on Voltas with a target price of Rs 744. Indian AC market is at an inflection point and Daikin is a formidable competitor for Voltas.
Daikin has set aggressive growth targets and is also planning to set up a third plant to grow.
Daikin has been a front-runner in R&D spending, but Voltas has successfully defended its turf in the past. It is top India consumer electrical pick.
Analyst: D.K. Aggarwal, Chairman and Managing Director, SMC Investments, and Advisors
The company is continuously performing well and delivering in all the three parameters of revenue, profitability and order intake.
Management of the company expects international business to pick up with large order inflow from Jordan, Saudi, Far East (Indonesia, Thailand), etc. and international T&D, sub-stations and civil infra will be key drivers for FY18 order intake growth of 10 percent. Moreover, the management has maintained in annual guidance of 15 percent growth in FY19 revenue.
The company has been continuously growing in each business parameter and it is expected that it would be directly benefited by the government initiatives such as “Housing and power for all”.
It is best placed to attain scale across businesses with its new SBU (Strategic Business Unit) structure and focused product-wise branding strategy.
It has pioneered the concept of exclusive brand showroom in the electrical industry with ‘Havells Galaxy’. It became the first FMEG Company to offer door step service via its initiative ‘Havells Connect’.
The company is witnessing healthy financial growth across all the business segments. It has exhibited improvement in NIM and fee income and management expects to maintain same growth, going forward.
The company has also maintained a control on asset quality and provisions and expects its rural business to exhibit robust improvement in asset quality in coming years. The company has been showing consistent improvement in cost-to-income ratio.
The company expects to continue investments for growth, while sees scope for improvement in the cost-to-income ratio in long term.
The company is planning to increase its capacity through satellite grinding plants and this would enable the company to increase its presence in Andhra Pradesh, Odisha and West Bengal. The plans are to increase the capacity to 7.1 mtpa from 4 mtpa.
The expansion will be taken up at Vizag, Kolaghat and with a new grinding unit in Odisha. The proposed expansion will be completed in 18 months and the cost will be met through internal accruals and borrowings.
The aggregate estimated cost of expansion is Rs 1,095 crore. Going forward, it is expected that the company is well placed with surplus capacity to tap the robust demand growth potential in its core market coupled with changing geographical mix.
The company has robust new product plans for the next four financial years; a new product every year till FY21 beginning FY18.
Company plans to launch an MPV code which is being developed at its technical center in Detroit and is expected to be launched after 12 months.
Vehicle on the Tivoli platform (S221) is expected to be launched in2HFY19. Company's volume growth is on an uptrend led by strong demand in tractors and a cyclical recovery in light commercial vehicles. A pick up in rural economy is likely and this should benefit M&M.
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