Rate sensitive shares under-perform market as 9-month high inflation dampens rate cut hopes

While broad market sentiment continued to remain sluggish with a negative bias, investors curbed their position in several rate-sensitive shares after the June retail inflation, announced post-market hours Monday, accelerated to hit a 9-month high that dampened the interest rate cut hopes. Data released by the government yesterday showed CPI inflation rate rose to 5.4 percent in June from the preceding month’s 5.01 percent. As the fresh spike in inflation level is near to the RBI’s revised annual target of 6 percent inflation, the central bank would desist from undertaking any fresh rate cuts if the inflation shows accelerating trend and threatens to once again breach the target, say market analysts. [caption id=“attachment_2341366” align=“alignleft” width=“380”]  Reuters[/caption] Rate sensitive companies have been facing serious challenges on their business prospects, as the 75 basis points rate cut undertaken in the current year so far has not translated into a pick-up in demand. This is because, banks have brought down their base rates only by maximum 30 bps, which makes bank loans still expensive than bond issuances. Due to lack of demand for loans from the companies, bank credit growth remained muted at 9.8 percent in the April-June quarter, while overall automobile sales remained subdued as prospective buyers remain in a wait-and-watch mode and hope that interest rates on vehicle loans will come down in the near term. At 12.15 pm, the BSE auto index fell 0.8 percent to 18,547.98 and the Bankex eased 0.6 percent at 21,543.48 as against a 0.1 percent drop in the Sensex at 27,922.66. Among the laggards in automobile space, shares of Tata Motors declined 2.3 percent to Rs 393, Eicher Motors fell 1.3 percent to Rs 20,890 and MRF slipped 0.7 percent at Rs 35,500. Shares of M&M, Maruti and Bosch also traded marginally lower. In the banking space, shares of SBI eased 1.3 percent to Rs 270.05, Kotak Bank fell 1.2 percent to Rs 706.65, Federal Bank lost 0.8 percent to Rs 77.80 and ICICI Bank was down 0.6 percent at Rs 314.15.