Indian Markets Trade in the Green

Wed, 6 Apr 01:30 pm

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Indian indices are trading on a positive note in the post-noon trading session. Buying activity is being witnessed across telecom, metal and auto stocks.

The BSE Sensex is trading up 53 points (up 0.2%) and the NSE Nifty is trading up 19 points (up 0.2%). The BSE Mid Cap index is trading up 0.2% while the BSE Small Cap index is trading up by 0.7%. Gold prices, per 10 grams, are trading at Rs 28,717 levels. Silver price, per kilogram is trading at Rs 36,020 levels while crude oil is trading at Rs 2,469 per barrel. The rupee is trading at 66.55 to the US$.

Stocks in the real estate space are trading on a mixed note with ERA Infra Engineering and Prestige Estates leading the losses. As per an article in Economic Times, realty developers have welcomed the Reserve Bank of India's (RBI) decision to reduce repo rate by 0.25%. This is because the real estate developers are of the view that this move by the RBI may help in easing the home loan rates.

In the view of the developers, the decision of reducing repo rate would translate into lower EMIs (equated monthly installments) on housing loans, which might eventually aid the sluggish property market.

The above bets are based on the hopes that banks will pass on the benefit of this rate cut to home loan borrowers.

However, the question that remains is will banks actually follow suit and reduce their interest rates this time? We believe this is far from happening anytime soon. This is because the past experience shows that the direct correlation between RBI cutting the repo rate and banks passing on that cut at the same rate in the form of lower lending rates is rather weak.

As RBI governor Raghuram Rajan points out, "Since the rate reduction cycle that commenced in January [2015], less than half of the cumulative policy repo rate reduction of 125 basis points has been transmitted by banks. The median base lending rate has declined only by 60 basis points."

So, the chances of banks cutting lending rates are limited. However, the ground reality will be seen in the coming days.

The reason why banks are not willing to cut their lending rates is because it will reduce their income from interest earned. Further, the concern is that public sector banks (PSUs) are staring at a huge problem of corporate bad loans. And in order to handle this, banks are hoping to make a greater profit by cutting their deposit rates, but not cutting their lending rates at the same pace.

Our recent premium edition of The 5 Minute WrapUp titled 'How Important is the RBI Rate Cut?' shared some views on what will be the impact of RBI rate cut on Indian companies. You can read it here (subscription required).

Buying activity is witnessed across most of the engineering stocks with KSB Pumps and Elecon Engineering leading the gainers.

In another news update it was reported that <>Blue Star is planning to enter the water purifier business later this year.

For this, the company will initially offer residential water purifiers and will gradually enhance its range to cover commercial water purification systems.

The above initiative is part of the company's aggressive growth plans to expand its presence in related new product categories.

The company's cooling products segment also continues to perform well owing to the company's growing range of products, enhanced distribution and strong brand. The company is further planning to broaden its product line in related areas such as air coolers etc. To know our view on the stock of the company, you can read the entire result analysis report here (subscription required).

Blue Star is one of India's leading central air-conditioning and commercial refrigeration company. Presently the stock of the company is trading down by 0.7%.

By the way, April 2016 is a very special month for us at Equitymaster. We complete 20 years of service to millions of readers and subscribers.

And that's why we're in a celebratory mood.

Not only are we celebrating the success of The Equitymaster Way but also our success in earning the trust of subscribers who've been with us throughout this two-decade journey. And as the countdown to our anniversary begins, we would like to invite you to share some of your experiences with us over the years. You can do the same by posting your experiences here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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