Brokareges expect RBI to maintain status quo; all eyes on rate sensitive stocks

The Reserve Bank of India’s two-day Monetary Policy Committee (MPC) meeting concludes today for the sixth bi-monthly monetary policy statement. It is largely expected that the RBI is not likely to tinker with rates when it announces the decision of its MPC (Monetary Policy Committee) meeting, the first policy decision of the new calendar year and the first after the Union Budget.

The Consumer Price Inflation (CPI) rose to 5.21 percent in December, thereby crossing the expected zone. RBI will be keeping an eye on how the fading impact of the central government’s HRA (house rent allowance) component along with pass-through of a fall in GST rates impacts inflation in the coming months.

Shares from interest rate sensitive stocks including auto, banking and realty sectors will be in focus ahead of the Reserve Bank of India’s (RBI) monetary policy decision today.

Ahead of the policy, the Nifty auto index was trading handsomely, gaining 1 percent led by Apollo Tyres, Tata Motors, Hero MotoCorp, TVS Motor, Ashok Leyland and Amara Raja Batteries.

A rate cut or not but the realty space jumped close to 2 percent as stocks like Sobha, Phoenix Mills, Godrej Properties, Unitech, DLF and Delta Corp were all up between 1-2 percent.

However, the Bank Nifty slipped in the red and was trading marginally down by 0.18 percent dragged by PNB which fell 2 percent while HDFC Bank was lower by 1 percent.

According to BofAML, the RBI MPC is likely to continue slightly hawkish pause. “We continue to expect the RBI to persist with its slightly hawkish pause in its policy, on the side of caution. Inflation is likely peaking off to 5 percent in January from 5.2 percent in December with the vegetable price spike is expectedly reversing.”

The house is of the view that the RBI MPC should see through the coming jump in inflation, growth and credit in mid-2018 as they are driven by base effects.

Research firm CARE Ratings believes that the MPC is likely to maintain status quo on interest rates with the tone turning slightly hawkish given the conditions relating to future inflation.

Dhananjay Sinha, Head, Institutional Research, Economist and Strategist, Emkay Global Financial Services reasons that with rising inflation and credit demand, the RBI is likely to adopt increasingly hawkish stance and 10 year Gsec yield to rise above 8 percent in the next 6-12 months. The house expects RBI to keep the policy rates unchanged today, with a more hawkish sentiment than its recent announcement.

Overall, the house believes that mid cap and small cap indices is likely to start underperforming the large cap equities. We look for sectors and stocks that can participate in the cyclical upturn.moneycontrol