Rate sensitives recoup losses in late trade despite status quo policy

By: | Published: August 5, 2015 12:14 AM

Shares of companies sensitive to interest rates as well as those allied to it recouped losses in the final hour of trading after reacting negatively to the Reserve Bank of India (RBI) monetary policy.

Shares of companies sensitive to interest rates as well as those allied to it recouped losses in the final hour of trading after reacting negatively to the Reserve Bank of India (RBI) monetary policy.

As expected, the central bank maintained status quo at its third bi-monthly policy on Tuesday, leaving the benchmark repo rate at 7.25% after three cuts of 25 bps each so far this calendar. However, RBI governor Raghuram Rajan maintained an accommodative stance on the future course of monetary easing, helping lift investor sentiment.

“Given that policy action was front-loaded in June, it is prudent to keep the policy rate unchanged at the current juncture while maintaining the accommodative stance of monetary policy,” Rajan said in the official statement on Tuesday.

The country’s largest lender by assets, SBI advanced 2.54%. State-owned lender, PNB was the top performer in the sector with 3.5% gains. Bank of Baroda ended up 2.5%. The BSE Bankex ended at 21,814.85, up 103.12 points or 0.47%.

Auto shares saw buying interest with the BSE Auto up 1% at 19,440.12. The ascent was led by MRF (7.35%), Eicher Motors (6.76%), and Motherson Sumi (5.5%). Frontline auto companies such as Tata Motors and Hero MotoCorp ended down in the range of 1.5-3%.

The BSE Realty index lost 0.18% to close marginally weak. Rate sensitive stocks came under selling pressure in the immediate aftermath of the RBI policy announcement. The Bankex was down by nearly 150 points while the BSE Auto was down by 62 points as the news emerged.

But analysts say the rally in banks may be short lived as the sector is currently troubled by stressed assets and shortage of capital.

The government recently announced fresh capital infusion of R70,000 crore for public sector banking (PSBs) over the next four years but analysts say the quantum is far lower than the capital required by Indian banks at this juncture. In addition, PSBs asset quality has been constantly deteriorating. As per official data, stressed assets constitute 11.1% of total assets.

But the near-term outlook is positive for the auto sector with the industry poised to grow at a healthy rate. UBS predicts that domestic passenger vehicle sales will improve sharply in FY16 and FY17 driven by strong pent-up demand in urban areas and overall macro-economic recovery.

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