PSU banks, infra stocks to gain most once RBI cuts rates

Defensive sectors like FMCG and pharmaceuticals were in the limelight in 2012, with several stocks in these sectors moving up sharply. The FMCG Index was up 47% and the BSE Pharma Index gained 39% as compared to the broad market indicator BSE Sensex’s 25% up-move. However , according to market pundits, the action may shift away from these sectors in 2013.

They claim that interest rate-sensitive stocks in the banking and infrastructure sectors are likely to hog the limelight in the coming year. They argue that if the widely expected rate cut of up to 1% materialises in the coming year, it may prop up rate-sensitive sectors like banking, housing finance and infrastructure among others. “A rate cut could benefit infrastructure companies as projects which were unviable due to high interest rates could now get going. Also, companies could see their finance costs going down, thereby increasing profitability,” says Alok Ranjan, portfolio manager at Way2Wealth. As for your FMCG holdings, it may be time to take profits, suggest experts.

“Book partial profits in FMCG stocks. Valuations have run up sharply in these stocks. You can hold on to pharma stocks due to their strong growth prospects. Since rate cuts are around the corner, buy into beaten-down PSU banks and housing finance companies,” says Madhumita Ghosh, head of research at Unicon Financial Intermediaries.

THE DEFENSIVE PLAY

Investors have been focusing on the so-called defensive sectors like FMCG and pharmaceuticals in the last couple of years to avoid the adverse impact of the economic slowdown, rising inflation and high interest rates. They were rewarded well in the process. For example, Godrej Consumer has moved up 83%, from Rs 398 to Rs 731, in last one year, and the stock now trades at a PE of 38. Tata Global Beverages is up from Rs 82 to Rs 195, a gain of 95%; while Marico has moved up from Rs 139 to Rs 222, a gain of 60% and trades at a PE of 37.

Pharma stocks like Lupin have moved up from Rs 410 to Rs 620, a gain of 51%. “Indian pharma companies have a strong product pipeline and are expected to grow by 20% in the coming year. Investors should hold these stocks,” says Sarabjit Kaur Nangra, VP (research), Angel Broking. Experts, however, suggest a different strategy for FMCG holdings because of their expensive valuations. They want investors to book profit in FMCG stocks and buy into interest rate-sensitive stocks which have been underperformers over the last year. Punjab National Bank is up merely 9%, from Rs 799 to Rs 851; while Bank of India is up just 11%, from Rs 294 to Rs 328. A drop in interest rates could revive economic growth which has fallen to 5.5%. As and when interest rates fall, banks will pay lower interest rates to depositors, which will bring down their borrowing costs and increase margins .

“We believe that growth has bottomed out. As and when interest rates fall, growth could pick up and could lead to a revival in investment-led demand,” says Rajesh Cheruvu, chief investment officer at RBS Private Banking. A drop in interest rates could also reduce the problem of NPAs, which has affected PSU banks the most. “As the economy recovers and interest costs fall, NPAs will reduce ,” says Alok Ranjan.

http://economictimes.indiatimes.com/markets/analysis/psu-banks-infra-stocks-to-gain-most-once-rbi-cuts-rates/articleshow/17740333.cms