Monsoon blessing for rate-sensitive stocks

Banking and real estate stocks rise up to 5% on further rate-cut hope.

Incessant rains over the weekend boosted sentiments on Monday morning, pushing up the stocks of interest-rate sensitive sectors such as banking, real estate and automobiles.

Stocks of the realty and banking sector were about five and three per cent, respectively, as hopes of further rate-cuts by the Reserve Bank of India (RBI) resurfaced. Auto stocks were up about one per cent. 

“After the last RBI rate-cut, the monsoon prospects have improved. The initial concerns of poor monsoons have started waning off, which has given rise to hopes that we could see another round of rate-cut by the RBI,” said Pankaj Pandey, head of research at ICICI Direct. 

The last time RBI cut interest rates was during its policy review meeting held on June 2, by 25 basis points.

However, the RBI expressed concerns about further rate-cuts as the monsoon forecast around that time had indicated weak monsoons, even a drought-like situation.

Proving weather forecasts false, rains have continued to pour incessantly over the past few days, especially in the western part of the country, bolstering sentiment across the stock market. 

“Fear of monsoons had been overdone in the market and the indices were down 10-12 per cent. Individually, some of the stocks have been broken down by 15-20 per cent. The bounce-back that we saw was more or less on expected lines,” said Chokkalingam G, founder and managing director, Equinomics Research and Advisory. 

On Monday, the BSE Sensex rose 414 points, or 1.5 per cent, on the back of a sharp surge in Axis, ICICI and State Bank of India. Axis Bank was up 3.6 per cent, ICICI Bank was up 3.5 per cent, while SBI gained 2.2 per cent. The banking index, CNX Bank Nifty climbed 2.5 per cent. 

Typically, banking stocks are the first and foremost beneficiaries of a rate-cut, as the benefit is immediately passed on to customers helping banks improve their asset quality and credit off-take.

Shares in the banking space have fallen seven per cent during the month and were ripe for a bit of bounce-back, experts said. 

“Fundamentally, nothing has changed for the banking stocks. Only the sentiment around them changes now and then. Credit off-take in the public-sector banks is expected to be lower. The private sector banks are better placed for growth, but the question is at what cost because the asset quality seems to be deteriorating there as well,” said Daljeet Singh Kohli, head of research at IndiaNivesh Securities. 

Real estate stocks shot up on Monday led by IndiaBulls Real Estate, which rose 30 per cent. HDIL was the second best performer in the BSE Realty index, gaining eight per cent. DLF and Unitech were up about eight and seven per cent each. 

“One has to be cautious of the infrastructure stocks, particularly the real estate stocks, because the higher debt on the companies, the slower would be the impact of a rate-cut on these firms,” said Chokkalingam. The real estate sector was down 13 per cent excluding the five per cent rise seen on Monday.

While the auto index was up slightly above one per cent, some of the auto and auto-related stocks were up three per cent. Bosch, MRF and Tata Motors were the index lead performers, rising 3.4, two and 1.7 per cent, respectively. 

Experts said the most bets were on the improvement in the two-wheeler and the commercial vehicle segment as improving monsoons would boost rural growth and, subsequently, rural demand. Stocks such as Mahindra & Mahindra, Bajaj, Hero MotoCorp and Tata Motors, among others, are the stocks to look out for, they said. 

“The auto stocks at this point are among the cheaper stocks in the market at present. This segment will keep doing well as rural growth picks up,” said Kohli. 

The auto index had fallen as much as seven per cent since the beginning of this month.