Rate Sensitive Stocks Gain as Banks Start Passing on Rate Cuts

Interest rate sensitive stocks edged higher on Wednesday after the top lenders passed on the effect of the two rate cuts done by the Reserve Bank in this year by cutting their base lending rates.

Auto, real estate and banking stocks advanced 0.5-3 per cent as they will be the prime beneficiary of the rate cut.

The top lender of the country, State Bank of India and private lender HDFC Bank yesterday cut their base rate by 15 basis points and ICICI Bank has cut its base lending rates by 25 basis points. Axis Bank also cut its lending rates by 20 basis points today.

However, the gains in banking shares were capped as the likely reduction in net interest margins due to the base rate cut will be offset by higher advances, analysts said.

SBI's net interest margins (NIM) will be impacted by 4-5 basis points because of the reduction in base rate and ICICI Bank's NIM is estimated to fall by 5-6 basis points because of the cut, analysts estimate.

SBI, HDFC Bank were up between 0-0.5 per cent. The Bank Nifty was up 0.3 per cent.

From the auto pack, Bajaj Auto gained as much as 2 per cent to an intraday high of Rs 2,128, while Maruti Suzuki and Tata Motors were up between 0.5-1 per cent each respectively. The auto index advanced nearly one per cent. The rate cut will lead to increased sales for the auto companies as more new buyers will opt for auto loans, analysts say.

Shares in real estate companies like DLF, HDIL and Sobha Developers jumped between 0.5-3 per cent as the rate cut will induce more people to go for home loan.

As a cut in rates will lower the EMIs of existing home loan holders, it will increase their purchasing power leading to higher sales for other consumer oriented sectors like auto.