Rate-sensitive stocks tank; experts say wait and ride out the storm

Since last month, the realty (down 23%), auto (down 16%) and finance (down 14%) indices have underperformed the market by falling over 13%, as against 8% decline in the benchmark indices

Shares of rate-sensitive stocks such as automobile, finance and realty were reeling from pressure, with all the sectoral indices hitting their fresh 52-week lows on Thursday.

While sentiment, especially in the banking and finance segments, had turned sour given the developments in IL&FS, YES Bank, Dewan Housing and Indiabulls Housing, analysts say lower-than-expected sales figures for September dented investor confidence in auto stocks.

That apart, the fear of a hike in interest rates by the Reserve Bank of India (RBI) also saw investors shy away from rate-sensitive stocks.

“Lower-than-expected sales figures for September dented sentiment in the auto segment, while the developments in YES Bank, Dewan Housing and Indiabulls Housing saw investors dump stocks in the banking and finance segment.

"That apart, interest rates are on the rise and this will again impact the fortunes of rate-sensitives. I would prefer to wait and ride out the storm before committing fresh capital,” says G Chokkalingam, founder and managing director at Equinomics Research.

Since last month, the realty (down 23 per cent), auto (down 16 per cent) and finance (down 14 per cent) indices have underperformed the market by falling over 13 per cent, as against 8 per cent decline in the benchmark indices.

Shares of most frontline auto and auto ancillary companies such as Hero MotoCorp, Maruti Suzuki India, Eicher Motors, Apollo Tyres, Ceat and Motherson Sumi Systems are trading at their fresh 52-week lows on concerns of slowdown in demand owing to rising crude oil and commodity prices, especially petrol and diesel.

DLF, Oberoi Realty and J Kumar Infraprojects from the realty space, too, hit their respective fresh 52-week lows on Thursday.

Dewan Housing Finance Corporation (DHFL), YES Bank, Central Bank of India, Bandhan Bank, Bank of Baroda, Reliance Capital, Indiabulls Ventures, SREI Infrastructure Finance, PNB Housing Finance, IIFL Holdings, Edelweiss Financial Services and Reliance Nippon Life Asset Management from the financial sector have tanked more than 30 per cent since September amid the ongoing crisis at Infrastructure Leasing and Financial Services Ltd (IL&FS).

“September 2018 wholesale volumes need to be seen in the light of the timing difference of the festive season this year vis-à-vis last year, as reflected in the decline in tractor and PV (passenger vehicle) volumes.

"However, two-wheeler volumes benefited from an inventory build-up ahead of the festive season,” says Gautam Duggad, head of research at Motilal Oswal Securities.

Duggad prefers PVs/commercial vehicles over two-wheelers owing to their stronger volume growth and a stable competitive environment.

His top picks in auto are Maruti Suzuki and Motherson Sumi among large-caps, and Ashok Leyland and Exide Industries among mid-caps, and considers Mahindra & Mahindra the best proxy to play the rural theme.

Meanwhile, the six-member Monetary Policy Committee (MPC) is likely to hike rates by 25 basis point (bps).

If the RBI raises the interest rate on Friday, it would be third in a row.

“The tone would be accommodative. There could be an upward revision in the inflationary projections for the year on account of higher oil prices, increase in MSPs and imported inflation (on back of rupee depreciation).

"The August policy projected CPI inflation of 4.8% for H2FY19,” CARE Ratings said in a note.

Photograph: Danish Siddiqui/Reuters