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Which Sectors Could Benefit From the Declining Interest Rate Scenario

in.investing.com/analysis/which-sectors-could-benefit-from-the-declining-interest-rate-scenario-200207620
Which Sectors Could Benefit From the Declining Interest Rate Scenario
By Puneet Sikka/Investing.com   |  Feb 11, 2019 10:58
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RBI's Monetary Policy Committee (MPC) decided to cut the repo rate by 25 basis points from 6.50% to 6.25% last week. I discussed the main reason why RBI did that in my article last week. The global economic situation has worsened over the last few days, with the European Commission cutting its growth forecast for Euro Zone. The ongoing US-China trade war and growing concerns from Brexit are likely to dent global economic growth.

Since RBI is focusing on growth-related issues that India could encounter from global headwinds, the likelihood of RBI cutting interest rates during its next meeting in April increases further. There is a good possibility that RBI will cut interest rates by another 25 basis points in the next couple of months. Hence, in this declining interest rate scenario, I will discuss here what sectors look good from an investment point of view.

The most obvious sector that comes to my mind that should benefit is the interest rate sensitive sectors such as Real Estate and Automobile. In the declining interest rate scenario, buying Real Estate become more affordable as your EMIs come down. EMIs make up for a chunk of household expenditure for a salaried class. As an example, if you had taken a housing loan of Rs. 30 lakhs for a tenure of 20 years at a home loan interest rate of 9%, your EMI would be Rs. 26,992. However, in the scenario where your bank reduces the home loan rate by 0.5%, your EMI will come down to Rs. 26,035. That is a cool savings of Rs. 957 per month.

Maruti Stock Price
Maruti Stock Price

There is also talk of lowering GST rates for the housing sector, which will a further boost to the sector.

Similarly, you will need to pay lower EMIs on your auto loan. Along with lower crude prices, lower interest rates should boost the auto sector. Auto sector badly needed some help and it duly came in the form of interest rate cuts from RBI. Maruti Suzuki India Ltd. (NS:MRTI), the market leader in the car segment has been suffering from a decline in net profits over the last few quarters. I discussed this aspect in my article on Maruti a few days back.

The lower interest rate scenario helps consumers have more money in their hand. This along with some of the consumer-benefiting proposals that the government announced during the recent union budget are likely to increase disposable income for consumers. This should directly help companies with a domestic consumption theme as consumers are more likely to make purchases of the products that they hold-off making during a high-interest rate scenario.

Which Sectors Could Benefit From the Declining Interest Rate Scenario
 
Which Sectors Could Benefit From the Declining Interest Rate Scenario

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amit singh
amit singh Feb 14, 2019 11:12
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Hi ,..the title of the post was a click bait . with no real value in the post . .. RBI rates don't impact retail housing or consumer behaviour .[ The average buyer doesn't buy because the rates are favourable to his income , he merely compares the rates in offer from the bank and nbfc's . So respectfully. the argument is not well founded] .let talk more about how cheaper money impacts the sellers of products and services ...not buyers .
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samir maity
samir maity Feb 11, 2019 12:35
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non banking financial company
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shrikant jichkar
shrikant jichkar Feb 11, 2019 12:22
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Thanks a lot.
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Vijay Ra
Vijay Ra Feb 11, 2019 12:17
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Thanks. What about NBFCs?
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Yogesh Vesvikar
Yogesh Vesvikar Feb 11, 2019 12:11
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Good assessment but need to be cautious about the business cycle down for auto industries.
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