Banking Stocks Plunge Post Rate Cut

Tue, 5 Apr 01:30 pm

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Indian indices extended their losses in the post-noon trading session after the Reserve Bank of India cut repo rate by 0.25%. Selling pressure is being witnessed across sectoral indices with banking, telecom and metal stocks bearing the maximum brunt.

The BSE Sensex is trading lower by 410 (down 1.6%) and the NSE Nifty is trading down by 122 points (down 1.6%). The BSE Mid Cap index is trading lower by 1.1% while the BSE Small Cap index is trading down by 1.2%. Gold prices, per 10 grams, are trading at Rs 28,727 levels. Silver price, per kilogram, is trading at Rs 36,008 levels. Crude oil is trading at Rs 2,364 per barrel. The rupee is trading at 66.43 to the US$.

Along with a 0.25% cut in repo rates, the RBI reduced minimum daily maintenance of cash reserve ratio (CRR) from 95% of requirement to 90% with effect from the fortnight beginning April 16, 2016.

The central bank now expects CPI inflation at around 5% in 2016-17 and economy to grow 7.6% in FY17.

In a recent column in Vivek Kaul's Diary, Vivek had made the case for a 0.25% rate cut. Some of his reasons were that RBI should adopt a wait and watch policy to monitor whether banks pass on the cut to lenders before going for a further slash in the repo rate. To know more about Vivek's views on interest rates and RBI's policies, please click here.

FMCG stocks are also trading on a negative with Godrej Consumer and Archies leading the losses. As per a leading financial daily, Hindustan Unilever Ltd (HUL) has completed sale of its bread and bakery business under 'Modern' brand to Everstone Group's Nimman Foods Pvt Ltd.

The transaction includes sale and transfer of the 'Modern' brand and business on a going concern basis. Both the companies - HUL and Everstone - will work together to secure the necessary approvals to complete the transaction over the next few months.

HUL stated that the above decision is in line with its strategy to exit non-core business, while continuing to drive its growth agenda in the core packaged foods business.

'Modern' brand includes products such as cakes, muffins, buns, pavs and cream rolls. It has six manufacturing units and a network of franchisees across India.

HUL is India's largest FMCG company with over 35 brands spanning across 20 distinct categories. The company reported a revenue growth of 3% YoY during the quarter ended December 2015. However, profits during the quarter declined by 22% YoY (subscription required).

The company is now aiming to improve its volume offtake in a deflationary environment; this strategy remains common in both the markets - rural and urban.

Key factors to keep an eye out for include the poor monsoons, minimum support prices, government spending and government subsidy - all of which have a bearing on rural pockets and spending. It must be noted that the company derives about 40% of its revenues from the rural markets.

Presently the stock of the company is trading flat on the BSE.

Stocks in the automobile space are trading on a negative note with Eicher Motor and Tata Motors witnessing maximum selling pressure.

In another news update it was reported that Mahindra & Mahindra's (M&M) has launched a new platform for tractors. The company has launched YUVO, a new age range of tractors in the 30-45 HP category.

It was noted that the YUVO platform developed by M&M at its R&D centre located near Chennai in Tamil Nadu has the flexibility to roll out tractors in 32, 35, 40, 42 and 45 HP categories covering 75% of the tractor industry in the country. The YUVO range comes in five models and will be available in 15 states in the country. M&M is the largest player in the country's tractor market with a market share of 41%.

On a separate note, M&M has launched its latest SUV - the NuvoSport. The launch has given a further boost to the company's leadership position in the UV segment.

The company has completed nine product launches in FY16. The impact of this, along with the above launches, will be reflected in the financials of FY17. We have discussed this in our result analysis report of the company here (subscription required).

Presently the stock of the company is trading down by 1.5%.

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