Interest rate sensitive stocks shine as exit polls favour BJP-led govt

Nifty PSU Bank, Realty, Energy, Public Sector Enterprises and Bankex clocked highest single-day gains in 10 years on Monday

Exit polls favouring a BJP-led coalition lifted the spirits with leading indices rising by over three per cent on Monday. What turned out to be the best single day gains for the BSE Sensex and CNX Nifty in over 10 years, propped up sentiments for some of the beaten-down segments such as public sector banks, infrastructure, real estate and energy. Reckoned as interest rate sensitives, these pockets led by the Nifty PSU Bank index – up nearly eight per cent, hogged much of the limelight on Monday’s trade. 

While the Nifty Realty and Infrastructure indices rose over five per cent each, those such as Nifty Energy, Bank, Commodities, Public Sector Enterprises and Automobiles also gained upwards of four per cent. Interestingly, while Monday’s 420 points rally in the Nifty lifted the bank-led indices to their all-time high levels, other indices are well below their 52-week high, a point which indicates that the lack of earnings trigger may be a key dampener for stocks comprising these indices.

Experts say, underneath the layer of Monday’s trading exuberance there is also a hope that some of the reforms carried out by the current government, particularly with respect to road construction projects, banking and real estate where some of the reforms have yielded desired results, will continue.

“The current government is known to be fiscally more responsible and its election agenda indicated that it won’t deviate from this path if elected to power again. This explains the price movement for rate sensitive sectors,” says Pankaj Pandey, head of research, ICICI Securities. 

However, it is important that investors shouldn’t be swayed by Monday’s gains. Experts say, investors need to hold patience till final results are out. “Barring the banking stocks, sectors which rose on Monday haven’t found acceptance from investors, especially in the last six months. To that extent, the market seems to be pricing in too much ahead of fundamentals,” cautions a head of research at a foreign brokerage.

According to him, even if the BJP-led government gets another term, the impact of fresh set of reforms the government rolls out and its potential gains for the underlying sectors will be more decisive to judge if stocks from the Nifty PSU Bank, Realty, and Infrastructure sectors are worth taking fresh positions for investors. Yet, Saurabh Mukherjea, founder, Marcellus Investment Managers says that even if earnings should improve at the margin, investors shouldn’t be carried away by these factors.

“I wouldn’t read much into Monday’s gains, given that segments have been in trouble for many years. They don’t offer stable earnings to investors and one could be caught on the wrong with these names,” he warns. 

In all, whether Monday’s price action was just a one-off or it could offer more to investors will ultimately depend on the final poll verdict and what the new government will do to lift up their earnings growth.