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RBI dovish stance cheers D-St, 10 rate-sensitive stocks to buy for long term

RBI dovish stance cheers D-St, 10 rate-sensitive stocks to buy for long term
April 07
14:02 2021

Investors can ride the low-interest rate scenario by investing in quality and growth-focused rate-sensitive stocks from sectors like consumer durables, autos, banks, NBFCs and infrastructure, say experts.

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The Reserve Bank of India’s monetary policy committee (MPC) as expected left the repo rate unchanged at 4 percent and reverse repo rate at 3.35 percent. The central bank’s assurance of continuing with the accommodative stance led to a sharp vertical up move on Dalal Street even as concerns grow over the more aggressive second coronavirus wave.

The accommodative stance bodes well for a sustained recovery in the economy and the continuation of the low-interest rates will lend support to rate-sensitive sectors such as consumer durable, autos, banks, NBFCs, and infrastructure, say experts.

“The monetary policy announcement is on expected lines without changes in policy rates and stance. However, reading between the lines, one can conclude that the stance is more dovish than expected with the governor reinforcing the central bank’s commitment to remain accommodative to support & nurture the recovery as long as necessary,” Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services told Moneycontrol.

The MPC stuck to its gross domestic product (GDP) growth forecast of 10.5 percent for FY22  and RBI revised CPI inflation forecast for Q4FY21 to 5 percent from 5.2 percent.

“The bond market has taken the announcement positively with the 10-year yield moving to 6.12 percent. The governor’s assurance to ensure an orderly evolution of the yield curve also is confidence-inspiring,” Vijayakumar said.

The MPC said underlying inflationary pressures were emanating from high international commodity prices and logistics costs. The softening in crude prices in recent weeks, if it sustains, can assuage input cost pressures.

Also read: RBI Monetary Policy: Key takeaways from Governor Shaktikanta Das’ address

Experts feel that a rise in inflation is unlikely to dent the bulls party on D-Street as the growth outlook remains strong.

“Rise in inflation without a rise in the interest will not impact the equity markets to a great extent because rising inflation is followed by increased rates which increases the cost of capital and thereby valuations of stock,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited told Moneycontrol.

“As of now the level of 14900 in Nifty and 33,400 in the Bank Nifty are two crucial levels beyond which a fresh rally is expected, until these levels are breached the outlook is quite gloomy,” he said.

Investors can ride the low-interest rate scenario by investing in quality, and growth-focused rate-sensitive stocks from sectors like consumer durables, autos, banks, NBFCs, as infrastructure.

Here are 10 rate-sensitive stocks picked by experts for the long term:

D K Aggarwal, CMD of SMC Investments and Advisors Limited

State Bank of India

Operating performance of the bank remains strong and doing better than industry average during the current quarter and management expects core operating performance continues to be strong.

The bank has witnessed a good quarter on various fronts such as asset quality, earnings, NPA management, NII, NIM, & operating income. According to the management, the bank is heading in the right direction, and the long-term outlook is bright and aims to improve operating profit in coming quarters.

Business of the bank increased 11 percent on a year-on-year (YoY) to Rs 59,92,360 crore at the end of December 2020. Deposits increased 14 percent at Rs 35,35,753 crore, while advances rose 7 percent at Rs 2456607 crore at the end of December 2020.

Tata Consumer Products Limited

Despite a challenging external environment this year, strong distribution reach and portfolio from the mass to the premium end helped the company achieve good growth.

The company has delivered strong volume and revenue growth during Q3FY21 driven by broad-based performance across major markets and categories.

With the risk of COVID-19 receding in India, demand for out-of-home consumption segments would also see strong recovery in the quarters ahead.

Thus, sustained demand for branded products and improving demand for out-of-home consumption segments would act as key growth drivers in the coming quarters.

KNR Constructions Limited

The strong balance sheet gives it a key competitive advantage against peers in bidding for newer projects and in terms of strong execution despite financing challenges in the sector as the dependency on bank financing is minimal.

The government’s thrust on infrastructure and NHAI’s strong order pipeline supports the company’s growth prospects. The order book stands at Rs 7664 crore, of which irrigation forms 45 percent, HAM road projects 31 percent and others road projects 24 percent.

The company aims to add more business verticals in elevated metro rail and railway projects. The order book is supported by Rs 4,000 crore of order inflows in 9MFY21.

Crompton Greaves Consumer Electrical Limited

The company is doing well and according to the management, ECD segment continues its strong performance and the business is growing across categories and geographies.

Its strategic investments in sales channels, consumer-centric product innovation and technology enablement has aided the strong performance. E-com and rural channels reported increased share in the overall business.

The cost reduction programme delivered strong results, driving the bottom line faster than the topline. Sales across the rural channel reported strong growth of 88 percent in Q3FY21 with the performance of the distribution network.

The company has already penetrated into 300 mid-sized rural cities and towns (having 50,000 to 1 lakh population) and is planning to cover 100 more cities and towns in the coming three quarters. In addition to branding and distribution, it is investing into R&D and also planning a foray into the small-appliances category.

Housing Development Finance Corporation

The demand for home loans continued to remain strong owing to low interest rates, softer property prices, concessional stamp duty rates in certain states and continued fiscal incentives on home loans.

Moreover, it has reported a strong performance, with advance in growth driven by both corporate and revival in the Retail segment.

Operating performance remained steady, led by healthy business growth, sequential margin improvement, and cost control. According to the management, the growth was higher than expected and currently, comfortable provision levels are maintained.

December 2020 witnessed the highest ever levels in terms of receipts, approvals, and disbursements.

Expert: Atish Matlawala, Sr Analyst, SSJ Finance & Securities.

Bajaj Finance

Bajaj Finance is the largest consumer finance company with an AUM of Rs 1,53,000 crore. It has a total customer base of 4.8 crore customers. It has a distribution network of around 1,15,000 touchpoints.

Bajaj Finance has tied up with all major consumer brands in India, which give the company an added advantage. We recommend buying for medium to long term.

Ashok Leyland

The RBI has kept the interest rate low to give a boost to economic recovery. Sales of commercial vehicles are directly related to GDP growth. We expect Ashok Leyland to benefit from the revival in the economy.

Expert: Gaurav Garg, Head of Research at CapitalVia Global Research Limited.

HDFC Bank

The bank has maintained steady and growing net profit over the quarters and a declining trend of NPA figures (Q-o-Q) seems promising. We have a target of Rs 1,502

JK Cement

The company has maintained a steady flow of revenue till Q3 of FY 2021 and also sustained net profit on a quarterly basis with the drive-in real estate and infra projects, this stock seems to be a lucrative pick. We have a target of Rs 3,060 on the stock.

Expert: Siji Philip, Senior Research Analyst, Axis Securities.

ICICI Bank

Large banks such as ICICI, State Bank of India and HDFC are good buys at current levels. We expect large banks to be better placed considering their provisioning buffers, adequate capitalisation, improving market share, and strong deposit traction.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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