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The surprise cut of 50 basis points in repo rate by the RBI is unlikely to boost sentiments towards some cyclical sectors at least in the short to medium term even if banks pass on the benefits of lower costs.
Results to take time Market experts continue to be cautious towards select cyclical sectors, preferring instead a stock-specific approach as they believe that benefits of lower rates, in addition to improving macros, such as lower inflation, lower commodity prices and higher government spending, will take time to reflect on the fundamentals of cyclical companies. “The rate cut by the RBI is just an incentive to borrow more.
Additional demand will take time to pick up,” said Rajesh Samtani, Vice-President, Portfolio Management Services at Anand Rathi Financial Services.
However, Sandip Sabharwal, an independent investment analyst, favours cyclical stocks more at the current juncture. He favours capital goods, infrastructure, automobile and banking stock. Defensives are trading at “expensive valuations” while prices of many “quality cyclical companies” have come off, he said.
At attractive valuations Stock prices of many cyclical companies have fallen considerably, especially during the August crash and are now trading at attractive valuations, market experts said. In the last one month, cyclical indices, such as CNX Auto, CNX Energy, CNX Infrastructure, CNX Metals and CNX PSU Banks, have declined 2-11 per cent. CNX Realty is an exception with a gain of 6.7 per cent.
Among the defencives, CNX IT has gained 4 per cent while CNX Pharma and CNX FMCG have declined 2.3 per cent and 3.1 per cent, respectively.
Taher Badshah, Senior Vice-President and Head of Equities, Motilal Oswal Asset Management Company, is sector agnostic. He is more focussed on company fundamentals and earnings visibility and/or growth.
“We do not want to look only at interest rates. We have not divided our portfolio between cyclicals and defensives. We prefer companies having tangible business growth over the next couple of years,” Badshah said.
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