Sectors to watch out in the monetary policy

The six-member Monetary Policy Committee (MPC) began its discussions on Tuesday amid common expectations of atleast a 25 basis point cut in the policy rate to cushion the impact of demonetisation. There might be surprise cut of 50 basis points from the committee, which would push market sentiments. During first MPC headed by RBI Governor, Urjit Patel repo rate was cut by 25 basis points to 6.25 per cent.

Talking about cash reserve ratio, RBI is unlikely to conticarnue to apply the incremental cash reserve ratio after increase in Market Stabilisation Scheme (MSS) ceiling to Rs 6 lakh crore from Rs 30000 crore.

There is an impact on all sectors. The intensity of the impact is different. The most affected ones are Banking, Automobile, Housing Finance Companies and Construction.

The Consumer Durables sector which is also sensitive both to the interest rate setting as well as to the domestic demand behaviour and the entire car segment, white good demand they get affected in this scenario.

The least likely sector which gets affected is basically the Staples sector. People do not change daily eating habits due to interest rate hikes, therefore the Consumer Non-durable sector, the non-discretionary part of demand is the least affected in this scenario. 

Automobile: The demand will increase on account of cheaper auto loans. There is speculation that due to demonetisation, Auto sector sales may have taken a beating. Going forward, if interest rates come down, the Auto sector specific stocks will trade in green.

Real Estate: The sectoral index has been beaten down the most after demonetisation owing to fear of declining realty prices in both commercial and homes segment. Going forward, lower interest rates will allow demand to grow because of cheap home loans.

Housing Finance Companies: Housing Finance Companies may increase their retail client base which will be fruitful for them to increase top line in coming quarters.

Banking: Banking sector specific stocks will remain in focus as guidelines are expected to be issued for tackling situations like demonetisation, for the near term.