Equity Investments

As market braces for 25 bps rate hike by RBI, experts list 12 defensive buys

It looks like stars may not be aligned for Indian markets as rupee touched a fresh record low of Rs 73.58 against the US Dollar, while Sensex witnessed a cut of 800 points a day ahead of India’s Monetary Policy Committee (MPC) on Friday.

Most experts feel that the MPC might increase rates by 25 bps to combat rupee as well as a sudden rise in crude oil prices which could lead to a rise in inflation in the next few quarters.

A majority of analysts polled by Reuters last week expected a third consecutive 25 basis point increase in the key repo rate, currently set at 6.50 percent, though speculation are mounting that the Reserve Bank of India (RBI) could opt for a 50 bps hike.

Indian central bank has to walk a tightrope this time. Raising rates would counter the declining rupee trend and the deteriorating BOP position, but at the same time RBI has to balance the liquidity equation as well.

Edelweiss investment Research sees RBI to raise the policy repo rate by 25 bps on October 5. The central bank will have to balance multiple objectives in the current meeting.

“RBI has already done OMO purchases of Rs 51,000 crore this fiscal and has announced plans to infuse further liquidity of Rs 36,000 crore in October, in order to counter the liquidity deficit in the market and ease the sky-high bond yields. RBI will have to balance the two misaligned objectives,” it said.

Investors should prefer sectors in the consumption space, avoid rate-sensitive stocks in the NBFC space, suggest experts. Even in the rate-sensitive space, investors should focus on quality stocks which are now available at attractive valuations after the recent fall.

“Sectors like consumption, consumer durables, banking, and real estate will be impacted the most from the rate hike as the cost of the products will be directly influenced due to increase in interest rate,” Ritesh Ashar , CSO KIFS TradeCapital told Moneycontrol.

“But, among these sectors, there are few stocks which are rate sensitive but have strong fundamentals and can be a good bet to buy at current levels even if RBI hikes interest rates,” he said.

Sectors like consumption, consumer durables, banking, and real estate will be impacted the most from the rate hike as the cost of the products will be directly influenced due to increase in interest rate. But among these sectors, there are few stocks which are rate sensitive but have strong fundamentals and can be a good bet to buy at current levels even if RBI hikes interest rates.

Here is a list of 12 rate-sensitive stocks which are unlikely to get impacted negatively by a rate hike by the RBI:

Analyst: DK Aggarwal, Chairman, and MD, SMC Investments and Advisors

Bajaj Auto

The company has a diversified business model and a strong focus on the profitable growth, widening reach in export markets and strategic alliances with global majors.

The domestic 2-wheeler market would start growing from the festive season and would continue to grow for the next couple of years.

The management assured that one will see a very healthy top-line growth and a very healthy EBITDA increase in the coming quarters.

GAIL (India)

GAIL, which is India’s largest gas transmission company, is also seen as a beneficiary of higher crude oil prices. With the stable gas volumes from the gas trading, the gradual surge in transmission volumes from increasing demand and operational efficiency in the petrochemical segment will drive growth over the coming Quarters.

It also plans to set up battery charging stations for electric vehicles as well as build solar plants as it looks to be “future ready” for emerging businesses.

It also wants to explore the business opportunity in waste-water treatment plants, water distribution, and a large water pipeline laying as an early mover.

Mahindra CIE Automotive

The company has a strong balance sheet and consistently reporting steady performance on quarter on quarter. Cash flow is improving and the balance sheet is getting stronger.

The management of the company is Optimistic about Indian operations in future and margins looks sustainable. The company continues its focus on increasing plant efficiency and has improved margins through continuous improvements.

The integration between the Company and Parent CIE has become even tighter with full-time operational experts from CIE being stationed at the plants in Pune.

Analyst: Ritesh Ashar, CSO at KIFS TradeCapital

Colgate-Palmolive India

Colgate looks very strong as the company is virtually debt free. It has also given good returns on equity (ROE). The last 3 years record of return on equity (ROE) is 63.67 percent which is quite impressive.

The company is also maintaining a healthy dividend payout of 50.67 percent which becomes another plus point for the investor to buy the stock.

The company’s revenue is expected to grow as the number of stores for direct coverage will have an increase of 20-25 percent in FY18-19 and this will strengthen the other channels of the business thereby reducing dependency on wholesalers to an extent.

Bata India

Looking at the strong fundamental of the Bata India and going by the performance seen in the past few quarters, the stock looks like a good bet at current levels after the recent correction.

The management planning for the near future to generate income and also their strategies which they are adopting of premiumising their products looks quite impressing.


If we look at Marico, the Parachute price hike of 21 percent to pass on copra inflation had impacted volume for the last few quarters but now that there is Softening in copra prices, this would result in healthy earnings in the coming quarters.

Dabur India

Dabur India posted a strong growth of 10 percent in the domestic business with a combination of 7.7 percent volume growth in the past quarter.

Dabur is going with aggressive product launches in Ayurveda and naturals space and also Governments impetus towards accelerating economy (mainly rural) would further push consumption as a theme.

Godrej Consumer Products

The international business of Godrej CP has started improving led by cost-saving initiatives and the company’s strategy of launching new and innovative products at disruptive price points is boosting growth, despite tough macroeconomic conditions.

All these factors and also the impressive results posted by Godrej CP in the previous quarter makes it a very strong contender for buying.

Analyst: Soumen Chatterjee, Director, Guiness Securities


Over the years, HDFC Bank remained as a great franchisee in Indian Banking space with industry-leading performance across all business parameters like Net Interest Margin (NIM), Return on Assets (RoA) and asset quality etc.

With the ongoing correction in the market, HDFC Bank has also corrected more than 12-13 percent from its peak. Trading at 4.8 times of its trailing Book Value (BV) compared to 5.4 times a month back, HDFC Bank is a value buy with medium to long-term horizon.


Q1 results for Escorts were operationally better than expected. Tractor sales data for the last few months were muted due to higher base and change in the season compared to the same period last year, that led to a sharp correction in the stock price (down more than 35 percent from its peak).

However, we feel the dismal performance in Agri segment is discounted in the stock price. The management expects construction & railway equipment division to contribute healthy volumes for the rest of the year. The stock is attractively priced at 18 times of its trailing earnings compared to 26 times a month back.

Ashok Leyland

The uptick in economic growth and pick up in the infrastructure activity is gaining momentum as indicated by the stellar Q1 GDP numbers.

On-going stricter enforcement of overloading norms is a positive development but competitive pressure is likely to remain high.

The increase in interest rate by RBI could hurt the private spending in the infra projects but we believe that Government’s spending in rural India in the election year will further boost demand for LCVs. The stock is attractively priced at 19 times of its trailing earnings with RoE of 25 percent.

JSW Steel

We expect domestic steel demand to grow at 7-7.5 percent in FY19 and think margins will remain steady if not improve in FY19 even if steel prices remain range-bound for the rest of the year.

The stock is trading at a reasonable valuation of 11 times of its trailing earnings with RoE of 28 percent. Higher interest rate scenario could lead to lower private spending in Infra projects which could adversely impact volume growth but we expect that to get offset with better realisations.

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