A steeper-than-expected 50 basis points hike in its key lending rate by the Reserve Bank of India (RBI) saw rate-sensitive stocks fall sharply on the Bombay Stock Exchange (BSE) on Tuesday. The BSE Realty Index was the biggest loser crashing 3.55%, while the BSE Bankex and Auto Index came off by 2.46% and 2.14%, respectively.
?The market was caught off-guard by Tuesday’s rate hike,? Manasije Mishra, MD & CEO, HSBC InvestDirect, said. ?We are already seeing some pressure in terms of higher interest and input costs in the quarterly numbers of companies. This will put more pressure, especially on companies in the capital goods, real estate and automobile sectors,” Mishra said, adding that at this moment, investors should avoid taking fresh exposure to such rate sensitive stocks.
?The investment in the equity market at this point in time should be extremely selective and with a long term perspective. Investors should avoid companies that have high debt in their books,? said Deven Choksey, MD, KR Choksey Securities.
?We could see another 50 bps hike. As such, we would advise investors to keep away from auto, realty, banking and infrastructure companies and focus on consumer goods, IT and pharma sector stocks,? said Saurabh Mukherjee, CEO, Ambit Capital. ?It will be banks, which will take a major hit, as they will be largely exposed to the downward growth in the economy. This will result in the slowing of credit growth, low net interest margin and a rise in their NPAs,? added Mukherjee.
Shares of realty major DLF ended the trading session at R233.60, down 4.26%, after falling as much as 4.81% soon after the RBI announced its rate hike. Similarly, Unitech shares lost over 5% in the intra-day trade before closing the day at R34.45, down 4.04%.
Among automobile companies, Tata Motors and Mahindra & Mahindra were the biggest losers, down 3.06% and 4.20%, respectively, while the stock of Maruti Suzuki which was down by over 2% in the intra-day trade, regained ground after the company came out with good quarterly numbers.
The stock finally ended the day at R1,202, down by just 0.32%.
?Banks are going to completely pass on the rate hike impact to its consumers. In this scenario, it will be the infrastructure companies that will take a major hit,? said Choksey. Shares of ICICI Bank fell 3.33%, while SBI lost 2.86% on Tuesday.