No Band-aid for realty, FMCG players

Monetary policy response will help preserve macro-financial stability, says RBI governor as he announces benchmark rate hike Wounded sectoral indices end Wednesday in red

Asurprise rate hike by the Reserve Bank of India (RBI) on Wednesday led to a general sell-off on Dalal Street. The benchmark BSE Sensex closed the day at 55,669 - down 2.3 per cent from the previous day. All sectoral indices ended the day in red, indicating that investors see a broader impact of the rate hike by the central bank.

The relative movement in the various sectoral indices, however, suggests that the biggest worry for equity investors is the potential decline in demand for interest rate-sensitive items, such as homes, motor vehicles, and consumer durables.

In comparison, investors see a mild negative impact for companies in the fast-moving consumer goods space (FMCG) and oil and gas.

In the financial services space, non-bank lenders are expected to fare worse than commercial banks in the new environment.

In contrast, oil and gas producers and power utilities ended the day in green as investors expect them to gain from higher inflation in the economy.

Information technology (IT) services companies also outperformed the broader market as the BSE IT Index was down only 1 per cent on Wednesday.

The BSE Consumer Durables Index was the worst performer on Wednesday, down 3.88 per cent during the day. In contrast, the index was among the top performers in 2021 and up 47.3 per cent last calendar year.

It was followed by the BSE Realty Index that was down 3.31 per cent on Wednesday. This is a big reversal for real estate developers that were among the top performers last year, with a 55 per cent rally in the Realty Index in 2021.

Automakers also underperformed the broader market and were down 2.53 per cent on Wednesday.

Analysts are not surprised.

“The rate hike will translate into higher interest on home, vehicle and consumer durables loans. It will raise their ownership cost,” says Dhananjay Sinha, managing director and chief strategist, JM Financial Institutional Securities.

In contrast, he only sees little or no impact on the demand for staples and personal care products largely bought with cash. This explains a marginal 1.67 per cent decline in the BSE FMCG Index on Wednesday

The rate hike is also expected to hit companies in capital-intensive or debt-heavy sectors, such as metals and mining and telecommunications (telecom).

The BSE Metal Index was down 2.89 per cent, while the BSE Telecom Index ended the day with a 2.73-per cent cut. In the financial services space, non-bank lenders, such as Bajaj Finance, LIC Housing, and Poonawala Fincorp, were the top losers, while decline in commercial banks was in line with the index.

The BSE Bankex was down 2.53 per cent, while the BSE Finance Index down 2.63 per cent.