Infra, realty companies stand to gain from rate cut
Real estate companies that have been reeling under debt will also gain
Mar 04, 2015
Source : Business Standard


Mumbai: RBI's surprise rate cut, much before its next month's meeting, means good news for infra, realty as well as high-debt companies. 


Banks had not cut their base rates after the RBcut the repo rate by 25 basis points on Jan 15. The gains, however, which typically come with a lag should start reflecting soon. 


Infrastructure companies like NCC, HCC, GMR, GVK, Gammon, Lanco, Sadbhav Engineering, Ashoka Buildcon and many more will stand to gain.

Apart from the interest rate cut, the gains from higher order flows will be bigger for construction companies given the government's focus on adding new infrastructure. The government has already raised the allocation towards infrastructure by Rs 75,000 crore for 2015-16 and is setting up an National Infrastructure Fund (NIF) with an initial capital of Rs 20,000 crore. What's more, the government will also be putting upfront 40% of the equity for the infrastructure projects.


On the other hand, real estate companies that have been reeling under debt will also gain. In fact, the share price of many companies is already reflecting the positive sentiments. As against the Sensex's rise of about a per cent, the BSE Realty index is up over 2.2%. Stocks like HDIL, DLF, for instance, are up over 3% each in Wednesday's trade.


The bigger gains, however, will accrue once the RBI cuts the rate further. Earlier, the expectations were that the central banker will cut rates by at least 75 basis points more this year. Going by this, there is hope for another 50 basis points of cut that could happen in the coming months. Together, it would mean a total of 100 basis points, which should prove sufficient to have a meaningful impact on interest costs of these companies.


The companies, however, would stand to gain more from the increase in business by way of more orders (in infrastructure space) and demand for houses (realty).


Investors thus could look at companies that are better placed in terms of execution and have sufficient operating profits currently to service their debt.

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