New Delhi: Ahead of the monetary policy review by the Reserve Bank of India, interest rate sensitive stocks have staged a smart pullback. They have outperformed the benchmark since Budget day.
The performance is remarkable considering that inflation in February rose faster than in January. Rising inflation is expected to force RBI raise interest rates again on Thursday.
Amisha Vora, managing director, Prabhudas Lilladher Group says:
Credit demand remains strong (23% y-o-y as on 25 Feb 2011), however IIP numbers have just started recovering (3.7% y-o-y growth in Jan 2011) hence RBI will not like to be over aggressive and hence market is unanimously factoring in 25 bps rate hike. Consequently, a 50 bps hike tomorrow could have a negative knee jerk reaction to the markets.
But then, Governor Subbarao has always favoured a calibrated approach. Investors have already factored a 25 bps hike in policy rates. On Wednesday, these stocks counted among some of the larger gainers.
What could be the reason? Auto and banking stocks can still factor in good fundamentals. Car and bike volumes are still growing at double-digit growth rates, bank credit growth is robust. As far as realty stocks are concerned, they can’t boast of any good reason, with home prices remaining high and sales shrinking. Perhaps, it can all be put down to their valuations. These set of stocks have suffered the most since the November high. Now, investors are realizing that they might have been too pessimistic and are now buying them back.