As RBI keeps a tight grip on liquidity, rate-sensitives fall

Written by fe Bureau | Mumbai | Updated: Jul 31 2013, 20:18pm hrs
Rate-sensitive stocks declined on Tuesday even though the Reserve Bank of India (RBI) decided to leave key rates unchanged amid concerns over rupee depreciation and a widening current account deficit (CAD) in its first quarter review of the monetary policy. While the benchmark Sensex lost 1.25%, most rate-sensitive counters fell between 2% and 5% each.

Among banking stocks, as many as five scrips on the NSE State Bank of India, Bank of India, Punjab National Bank, Union Bank of India and Canara Bank touched 52-week-lows. Union Bank of India was the biggest loser as it plunged 4.8% to close at R124 after hitting a 52-week-low of R123.5. State Bank of India touched a 52-week-low of R1,718.35, but closed at R1,722, or 1% down.

Apart from this, private banks like ICICI Bank closed at R926.25, or 0.25%, down, while Yes Bank ended at R348, or 4%, down. The sectoral benchmark index, Bank Nifty, was down 1.2%. In the year-to-date period, the banking index has declined over 18%, while the Nifty has shed less than 3%.

Market experts feel that with the rupee continuing to remain weak in spite of monetary tightening, the central bank would retain its tight grip on liquidity, which would put rate-sensitives under further stress. On Tuesday, rupee once again fell below 60-level to close at 60.485.

The cost of borrowing is going to stay at this level, if not higher. Sectors such as realty and infrastructure that depend upon short-term borrowings for their operations would find the going tough, said Pankaj Pandey, head (research), ICICI Securities.

CNX Realty was down 3.5% as DLF, Indias largest real estate company, saw its share touch a 52-week-low of R157. The counter closed at R157.2 after losing more than 7%. Unitech also touched a 52-week-low of R16.2 before closing at R16.5. In the current calendar year, CNX Infra and CNX Realty have corrected 16% and 40%, respectively.

CNX Infra slipped 2%, with major players BHEL (-2.9%), Crompton Greaves (-3.2%), Siemens (-3.9%), Reliance Infra (-7%) and GMR Infra (-8.2%), all paring valuations. BHEL also touched its 52-week-low of R152.10 before eventually closing at R152.40.

According to brokerages, the slowdown in GDP growth remains a major concern for these sectors. There has been no volume growth. Apart from this, we do not expect any rate cuts in FY13 as rupee is not showing any signs of recovery. Banks could see further stress on their net interest margins (NIMs) as in their bid to prop economic growth, they would have to keep interest rates low, said Sonam Udasi, head (research), IDBI Capital

Meanwhile, auto stocks were also under pressure on Tuesday. CNX Auto shed more than 2% with major players Tata Motors, Ashok Leyland and Bajaj Auto losing in the range of 3-5% each. In the current calendar year, CNX Auto has lost more than 8%.

OMCs hit hard

Shares of oil marketing companies were hit hard on Tuesday after the rupee weakened beyond the psychological mark of 60 /$ yet again, which would result in an increase in the cost of crude oil imports and hence under-recoveries for oil marketing companies.

The BSE Oil & Gas as well as the NSE CNX Energy were among the biggest index losers. State-owned oil marketing companies (OMCs), who import 70-80% of the crude oil requisites, plunged in the range of 3-12%, with three of them Indian Oil Corp (IOC), Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL) hitting their new 52-week lows.

Analysts said the weakening of the rupee would lead to higher under-recoveries, despite the government decision of allowing small diesel prices at regular intervals. In addition, global crude oil prices are inching higher, leading to a double whammy for Indian oil and gas companies.

Last week, US light sweet crude oil prices on the New York Mercantile Exchange surged to a 16-month high of around $109 per barrel on signs of improvement in US economy. NYMEX crude oil prices have rallied 10% since the start of July, Bloomberg data show.