Capital goods, power drag on likely high borrowing cost
The recent hike in CRR and repo rate by Reserve Bank of India to bring down inflation levels dragged the rate sensitive auto, capital goods, power and realty sectors lower on concerns it will increase the borrowing cost for the companies and may ...
By ET Online |
MUMBAI: The recent hike in CRR and repo rate by Reserve Bank of India to bring down inflation levels dragged the rate sensitive auto, capital goods, power and realty sectors lower on concerns it will increase the borrowing cost for the companies and may hurt their bottom line.
In an attempt to bring down the inflation from current level of 11.0-12.0 per cent to a level close to 7.0 per cent by March 31, 2009, the Reserve Bank of India on Tuesday raised the repo rate by another 50 basis points to 9 per cent and Cash Reserve Ratio by 25 bps to 9 per cent in its first quarter review of the monetary policy 2008-09.
"Rising interest rates and growing signs of the global slowdown put the rate sensitive sectors in a double whammy. To maintain a GDP growth of 8 per cent, the capital goods and power sectors need to borrow which will now be at the higher cost. Also, they are feeling the heat of the high fuel cost. Hence, from a short term perspective we are not favoring these sectors," said Ramnath Parekh, fund manager at globe one.
"Auto sector is already under pressure led by high cost of petrol and diesel. Increase in the CRR and repo rate will lead to increase in the lending rates by banks and will definitely impede the top line as well as bottom line growth of the companies. I'm neutral to negative on Auto sector at current point of time," said Sachetan Rajeshwar, analyst with Arnava Fund Management.
On BSE sectoral indices capital goods was down 3.62 per cent, auto fell 3.76 per cent and capital goods dropped 3.62 per cent.
On stocks front, Tata Motors fell 5.56 per cent, M&M plunged 6.8 per cent and Maruti plummeted 6.82 per cent. In capital goods sector, Larsen & Toubro skid 4.68 per cent, BHEL slipped 3.5 per cent and Siemens decreased 5.17 per cent. In power sector, Suzlon fell marginally 0.8 per cent, NTPC slid 4.8 per cent, Reliance Natural dropped 6.5 per cent and power grid skid 2.7 per cent.
In an attempt to bring down the inflation from current level of 11.0-12.0 per cent to a level close to 7.0 per cent by March 31, 2009, the Reserve Bank of India on Tuesday raised the repo rate by another 50 basis points to 9 per cent and Cash Reserve Ratio by 25 bps to 9 per cent in its first quarter review of the monetary policy 2008-09.
"Rising interest rates and growing signs of the global slowdown put the rate sensitive sectors in a double whammy. To maintain a GDP growth of 8 per cent, the capital goods and power sectors need to borrow which will now be at the higher cost. Also, they are feeling the heat of the high fuel cost. Hence, from a short term perspective we are not favoring these sectors," said Ramnath Parekh, fund manager at globe one.
"Auto sector is already under pressure led by high cost of petrol and diesel. Increase in the CRR and repo rate will lead to increase in the lending rates by banks and will definitely impede the top line as well as bottom line growth of the companies. I'm neutral to negative on Auto sector at current point of time," said Sachetan Rajeshwar, analyst with Arnava Fund Management.
On BSE sectoral indices capital goods was down 3.62 per cent, auto fell 3.76 per cent and capital goods dropped 3.62 per cent.
On stocks front, Tata Motors fell 5.56 per cent, M&M plunged 6.8 per cent and Maruti plummeted 6.82 per cent. In capital goods sector, Larsen & Toubro skid 4.68 per cent, BHEL slipped 3.5 per cent and Siemens decreased 5.17 per cent. In power sector, Suzlon fell marginally 0.8 per cent, NTPC slid 4.8 per cent, Reliance Natural dropped 6.5 per cent and power grid skid 2.7 per cent.
ADVERTISEMENT
Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
