NEW DELHI: In line with estimates, the Reserve Bank of India (RBI) kept the repo rate unchanged at 8 per cent in its monetary policy review on Tuesday, for the fifth time in a row.
However, a possibility of a rate cut early next year becomes much more visible now, which led to a smart recovery in rate sensitive stocks, which were trading with losses ahead of the policy meet.
"A change in the monetary policy stance at the current juncture is premature," Rajan said in the statement accompanying the announcement.
"However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle," he said.
RBI Governor Rajan has been under pressure from various quarters for a reduction in rates -- since prices are sliding fast amid uncertain growth indicators -- to boost growth and kick start the lagging investment cycle in Asia's third largest economy.
But economists are of the view that the fall could be temporary, given the base effect and that there are chances of a sharp jump in the CPI reading early next year, said an ET report.
Some analysts are of the view that the rate cut is on its way and cyclical sectors are likely to get benefitted the most once that happens.
"My guess is that both the bond market and the equity market will converge in terms of the fact that a rate cut is on its way, the inflation is easing off and hopefully the rate cuts will happen sooner rather than later in 2015," says Nilesh Shah, MD & CEO, Axis Capital.
Avinnash Gorakssakar, Head of Research, Miintdirect.com, is of the view that banks should definitely be a part of investors' core portfolio, because inflation levels have come down and crude prices have come down. So hopefully post the budget and clearly in the January to March period once the rate cut cycle happens, you will see significantly re-rating on the PSU large cap banks, he says.
"We could see some re-rating in SBI and Bank of Baroda, and I would say that these are stocks which still trade at significant discounts to private sector banks. So any dip in the market prices should be an opportunity," explains Gorakssakar.
We have collated a list of ten rate sensitive stocks from various analysts or brokerage firms for a period of next 6-12 months:
Kotak Mahindra Bank: JPMorgan maintains 'overweight' with a target of Rs 1375
The global investment bank has retained 'overweight' on Kotak Mahindra Bank. ING Vysya Bank's acquisition is accretive for it. The acquisition also addresses key concerns, such as its narrow customer base and the need for promoter dilution.
Analyst: Vivek Gupta, CMT - Director Research, CapitalVia Global Research Limited
Canara Bank: Target price set at Rs 560
The stock is trading near the resistance mark of Rs 422 from the last few weeks and it is sustaining above its 50 and 200 DMA with the RSI of 56. The stock is likely to continue its recovery trend above the resistance level of Rs 422. One can expect the targets of Rs 557-560 with a stop loss of Rs 287.
Syndicate Bank: Target price set at Rs 180
The stock has shown correction from the higher levels and now it is accumulating below the resistance level of 134. The stock is trading above its 200 and 50 DMA with the RSI of 53. Therefore in near term buying opportunities can be seen in the stock with the crossing of the resistance level. One can expect targets of 170-180 in the stock with a stop loss of 99.
Tata Motors DVR: Target price set at Rs 440
It is in a bullish trend and has started showing recovery after the recent corrective movement from the higher levels. It is sustaining above its 50 and 200 DMA with the RSI of 61. It is likely to continue its northwards journey if it manages to sustain above the level of 279. One can expect the targets of 430-440 in the stock with a stop loss of 279.
UCO Bank: Target price set at Rs 98
For long term, UCO Bank is looking bullish on charts. Its technicals are indicating a strong bullish move in near team. The stock has well tested its falling trendline and is sustaining above its 200 & 50 days moving average. Traders can go for buying in this stock if the level of Rs 90.25 is crossed for targets of Rs 98 and above with a strict stop loss at Rs 86.
IDFC: Target price set at Rs 215
The stock is trading in a range and is sustaining above its 200 and 50 DMA with RSI of 62. If the stock breaks the range at the level of 167 and manages to sustain above the level of 122, the stock is likely to show a rally and may test the level of 212-215.
Analyst: Gaurav S. Ratnaparkhi, Technical Analyst at Sharekhan
Adani Enterprises Ltd: Target price set at Rs 520
The stock has formed a multi week bullish triangular pattern. Currently it is trading near lower end of the pattern. Junction of 40 WEMA & weekly lower Bollinger Band is there to provide support. Thus one can buy the stock in the range of 445-435 with a stop loss of 400 for targets of 500 - 520
Punjab National Bank: Target price set at Rs 1240
PNB has recently started rallying from its crucial daily as well as weekly Moving Averages. Structurally it has started a fresh rally. Momentum indicators on various time frames are in line with the rally. One can buy PNB in the range of 1080-1060 with a stop loss of 970 for targets of 1200-1240
L&T: Target price set at Rs 1850
For the last few weeks L&T has been consolidating above multiple supports. Structurally the consolidation is likely to break out on the upside.
Medium-term momentum indicators are in a bullish mode whereas the short-term momentum indicators seem to have completed their correction cycle. One can buy L&T above 1657 with a stop loss of 1575 for targets of 1776 - 1850
Century Textiles: Target price set at Rs 640
The stock is finding support near 61.8% retracement of the previous Impulse on the upside. From the key Fibonacci ratio, it can start a fresh move on the upside. The stock can also witness lower Bollinger reversal from the current level on the daily chart. One can buy the stock in the range of 540 - 525 with a stop loss of 490 for targets of 600 - 640.
(Views and recommendations expressed in this section are the analysts' own, Please consult your financial advisor before taking any position in the stocks mentioned.)
However, a possibility of a rate cut early next year becomes much more visible now, which led to a smart recovery in rate sensitive stocks, which were trading with losses ahead of the policy meet.
"A change in the monetary policy stance at the current juncture is premature," Rajan said in the statement accompanying the announcement.
"However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle," he said.
RBI Governor Rajan has been under pressure from various quarters for a reduction in rates -- since prices are sliding fast amid uncertain growth indicators -- to boost growth and kick start the lagging investment cycle in Asia's third largest economy.
But economists are of the view that the fall could be temporary, given the base effect and that there are chances of a sharp jump in the CPI reading early next year, said an ET report.
Some analysts are of the view that the rate cut is on its way and cyclical sectors are likely to get benefitted the most once that happens.
"My guess is that both the bond market and the equity market will converge in terms of the fact that a rate cut is on its way, the inflation is easing off and hopefully the rate cuts will happen sooner rather than later in 2015," says Nilesh Shah, MD & CEO, Axis Capital.
Avinnash Gorakssakar, Head of Research, Miintdirect.com, is of the view that banks should definitely be a part of investors' core portfolio, because inflation levels have come down and crude prices have come down. So hopefully post the budget and clearly in the January to March period once the rate cut cycle happens, you will see significantly re-rating on the PSU large cap banks, he says.
"We could see some re-rating in SBI and Bank of Baroda, and I would say that these are stocks which still trade at significant discounts to private sector banks. So any dip in the market prices should be an opportunity," explains Gorakssakar.
We have collated a list of ten rate sensitive stocks from various analysts or brokerage firms for a period of next 6-12 months:
Kotak Mahindra Bank: JPMorgan maintains 'overweight' with a target of Rs 1375
The global investment bank has retained 'overweight' on Kotak Mahindra Bank. ING Vysya Bank's acquisition is accretive for it. The acquisition also addresses key concerns, such as its narrow customer base and the need for promoter dilution.
Analyst: Vivek Gupta, CMT - Director Research, CapitalVia Global Research Limited
Canara Bank: Target price set at Rs 560
The stock is trading near the resistance mark of Rs 422 from the last few weeks and it is sustaining above its 50 and 200 DMA with the RSI of 56. The stock is likely to continue its recovery trend above the resistance level of Rs 422. One can expect the targets of Rs 557-560 with a stop loss of Rs 287.
Syndicate Bank: Target price set at Rs 180
The stock has shown correction from the higher levels and now it is accumulating below the resistance level of 134. The stock is trading above its 200 and 50 DMA with the RSI of 53. Therefore in near term buying opportunities can be seen in the stock with the crossing of the resistance level. One can expect targets of 170-180 in the stock with a stop loss of 99.
Tata Motors DVR: Target price set at Rs 440
It is in a bullish trend and has started showing recovery after the recent corrective movement from the higher levels. It is sustaining above its 50 and 200 DMA with the RSI of 61. It is likely to continue its northwards journey if it manages to sustain above the level of 279. One can expect the targets of 430-440 in the stock with a stop loss of 279.
UCO Bank: Target price set at Rs 98
For long term, UCO Bank is looking bullish on charts. Its technicals are indicating a strong bullish move in near team. The stock has well tested its falling trendline and is sustaining above its 200 & 50 days moving average. Traders can go for buying in this stock if the level of Rs 90.25 is crossed for targets of Rs 98 and above with a strict stop loss at Rs 86.
IDFC: Target price set at Rs 215
The stock is trading in a range and is sustaining above its 200 and 50 DMA with RSI of 62. If the stock breaks the range at the level of 167 and manages to sustain above the level of 122, the stock is likely to show a rally and may test the level of 212-215.
Analyst: Gaurav S. Ratnaparkhi, Technical Analyst at Sharekhan
Adani Enterprises Ltd: Target price set at Rs 520
The stock has formed a multi week bullish triangular pattern. Currently it is trading near lower end of the pattern. Junction of 40 WEMA & weekly lower Bollinger Band is there to provide support. Thus one can buy the stock in the range of 445-435 with a stop loss of 400 for targets of 500 - 520
Punjab National Bank: Target price set at Rs 1240
PNB has recently started rallying from its crucial daily as well as weekly Moving Averages. Structurally it has started a fresh rally. Momentum indicators on various time frames are in line with the rally. One can buy PNB in the range of 1080-1060 with a stop loss of 970 for targets of 1200-1240
L&T: Target price set at Rs 1850
For the last few weeks L&T has been consolidating above multiple supports. Structurally the consolidation is likely to break out on the upside.
Medium-term momentum indicators are in a bullish mode whereas the short-term momentum indicators seem to have completed their correction cycle. One can buy L&T above 1657 with a stop loss of 1575 for targets of 1776 - 1850
Century Textiles: Target price set at Rs 640
The stock is finding support near 61.8% retracement of the previous Impulse on the upside. From the key Fibonacci ratio, it can start a fresh move on the upside. The stock can also witness lower Bollinger reversal from the current level on the daily chart. One can buy the stock in the range of 540 - 525 with a stop loss of 490 for targets of 600 - 640.
(Views and recommendations expressed in this section are the analysts' own, Please consult your financial advisor before taking any position in the stocks mentioned.)
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