Top 10 rate-sensitive stocks to bet on post RBI money policy

NEW DELHI: In line with market expectations, the Reserve Bank of India (RBI) maintained status quo on key policy rates in its monetary policy review on Tuesday.

However, what was comforting for markets was the commentary from RBI governor Raghuram Rajan that he would maintain an accommodative stance on interest rates.

“Markets and RBI will keep a close watch on the FOMC meeting and that shall be a key determinant of future policy action. The domestic market will largely track global cues until January end when expectations will start building up for the budget,” said Jimeet Modi, CEO, SAMCO Securities.

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A fall in interest rates will be a big booster for the banks as well as for the debt-laden companies. Most analysts on Dalal Street expect up to 100 bps cut in repo rate over the next 12 months.

“Cheaper loans for industry can generally help industrial stocks in general. With a positive effect on the stock market, the rupee will rise against dollar and euro,” said Vijay Singhania, Founder & Director, Trade Smart Online.

However, any appreciation of the rupee will be a little negative for IT and other export-linked stocks, though the effect will not be substantial due to the overall positive sentiments, experts said.

"The market seems to be giving ample opportunity amidst the global volatility since past few months now to accumulate quality stock in the portfolio with medium to long-term perspective," he added. "We believe one should stick to growth oriented and earning accretive companies despite the step valuation in the current market conditions," said Siddharth Sedani, Assistant Vice President, Advisory at Sharekhan. The market is likely to remain volatile ahead of the two-day rate-setting meeting of the US Federal Reserve on December 15 and 16. Most analysts on Dalal Street expect the US central bank to hike rates, which could result in some volatility across emerging markets, including India.

Analyst: D K Aggarwal, CMD, SMC Investments and Advisors

Gruh Finance: The company is engaged in providing loan for purchase and construction of residential houses. It has strong presence in western India and is also expanding to other geographies. The loan portfolio has increased 25 per cent to Rs 9,912.99 crore, disbursements increased 20 per cent to Rs 977.36 crore for the quarter ended September 2015 and cumulative disbursements have increased 25 per cent to Rs 16,965.8 crore at the end of September, 2015. The ongoing downward trend in interest rates could prove a big trigger for profitability.

Suprajit Engineering: Suprajit Engineering is the largest automotive cable maker with a planned annual cable capacity of 225 million cables. The management announced plans for capacity expansion across various manufacturing locations, including new units at Sanand, Gujarat and Vallam-Vadagal, Tamil Nadu, which are under progress and will be completed by March 2016 as per schedule. The company continues to be on a high growth trajectory despite a weak demand environment. If interest rates fall further, that would impact the direct growth of the company, said Aggarwal.

JSW Energy: JSW Energy is in the business of power generation, transmission and trading. The company expecting growth in generation from the hydro assets acquired, which also has been strong in the current year; the full benefit of the hydro generation will flow to the company in further years. Government initiatives such as UDAY, its capacity expansion plan and diversification into hydro power will further boost the company. Furthermore, company would benefit from RBI's lower interest rates policy as it would reduce interest burden of the company.

Reliance Industries: The company is into oil and gas production and has lined up capital expenditure of Rs 52,864 crore. The capital expenditure was principally on account of ongoing expansions projects in the petrochemicals and refining business at Jamnagar, Dahej and Hazira, Jio Infocomm and US Shale gas projects. The ongoing downtrend in interest rates could help more impactful financial growth of the company.

Zee Entertainment: Zee Entertainment Enterprises is one of India's leading television media and entertainment companies .The management continue to see the positive results of investments. The company will continue to endeavor on this track going forward and pursue new opportunities that will yield long term growth. Moreover, if the company could get capex fund at low interest rates, that can help it explore further opportunities.

Analysts: Vaibhav Agrawal, VP & Head of Research, Angel Broking

Axis Bank (upside 34%): The bank has been reporting robust NII growth, backed by strong retail loan growth, coupled with healthy growth in CASA deposits. Over the past five years, Axis Bank has expanded its branch network at around 21.2% CAGR (2,743 branches as of 2QFY2016). While the near term asset quality environment remains challenging, the bank in our view will be able to absorb the credit costs given the adequate profitability. Further, given its strong CASA and retail network, the bank is positioned strongly to benefit once the macros revive. The stock currently trades at 1.9x P/ABV FY2017E. The analyst recommends a buy rating on the stock with a target price of Rs 630.

ICICI Bank (upside: 29%): ICICI Bank has strategically transformed itself over the past few years, which has resulted in a significantly better balance sheet and earnings quality. Apart from the paradigm shift in the deposit mix reflected in its healthy Casa ratio, the bank has gradually reduced its international business, which has led to sustainable improvement in its NIM.

The bank’s substantial branch expansion from 1,438 branches at the end of FY2009 to nearly 4,050 branches by FY2015, and strong capital adequacy (tier-I at 12.6 per cent) has positioned it to grow its loan book at a faster clip as and when the business environment turns conducive.

At the current market price, the bank’s core banking business (after adjusting Rs 67 per share towards value of subsidiaries) is trading at 1.7 times FY2017E ABV. The valuation discount in our view vis-à-vis other private banks adequately factors in the relatively higher stressed assets that the bank is facing in the near term. The analyst recommends a buy rating on the stock, with a target price of Rs 354.

Yes Bank (Upside 20 per cent): The bank’s asset quality performance has held up well so far. Going forward, we have factored higher provisions and slippages given the bank’s corporate exposure to metal and EPC industries. Even after factoring the higher provisions and slippages, the analyst expects Yes Bank to deliver a CAGR of 20.2 per cent in earnings for FY2015-17E. Currently the stock trades at 2.0 times FY2017E ABV. The analyst recommends a buy rating on the stock with a target price of Rs 921.

LIC Housing Finance (Upside: 18 per cent): For companies like LIC Housing Finance, the funding environment has eased; thus it will lead to lower cost of borrowing, while retail housing loan growth and outlook remains reasonably good. Despite competition in mortgages, volume growth in the individual loans segment remains fairly strong. LIC Housing continues to grow its retail loan book at a healthy pace with healthy asset quality. The analyst expects the company to post a healthy loan book CAGR of 18.7 per cent over 2015-17E which is likely to reflect in the earnings CAGR of 20.5 per cent, over the same period. At the current market price, it is trading at 2.3 times FY2017E ABV. The analyst recommends a buy rating on the stock with a target price of Rs 571.

Ashok Leyland (Upside: 17%): Ashok Leyland would be direct beneficiary of MHCV upcycle, from which it derives about 90 per cent of its revenues. MHCV would be the fastest growing automotive segment over the next two years (the analyst expects 17 per cent CAGR volume growth over FY2015-2017), as the industry is expected to reach the pre-downcycle level by FY2018.

Strong volume growth coupled with operating leverage and reduced discounts is likely to increase profitability for Ashok Leyland five times over the next two years. The analysts recommends a buy rating on the stock with a target price of Rs 111.

(Views and recommendations given in this section are the analysts' own and do not represent those of EconomicTimes.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)