The recent hike in policy rates by the Reserve Bank of India (RBI) is

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expected to hurt credit growth of banks. Real estate companies may put on hold any new projects, while capital goods companies have to sacrifice margins. On the other hand, the automobile sector, which is already witnessing moderation in growth, may face a further slowdown due to costlier auto loans.

“Banks are likely to pass on the rate hikes to the borrowers with some lag as credit growth is already moderating due to the decline in credit proposals. Any further rise in lending rates would increase pressure on credit growth. A few banks have revised the growth target for the present financial year, while the others may also follow the trend due to weakening credit demand,” said Gaurav Dua, head of research at Sharekhan.

On the automobile sector, HDFC Securities in a note said, “We believe that while high interest rates crimp urban demand, strength in rural and export markets will sustain the overall auto sector demand growth for consumption-based”

For the real estate sector, land acquisition bill, which will be tabled in the monsoon session of parliament, would now be keenly watched. “We believe that while the cost of land acquisition will increase for companies as a result of the passage of this bill, acquiring land will become a lot simpler (than it is now),” said Aashiesh Agarwaal of Edelweiss Securities.

Stock performance

Interest rate-sensitive BSE Realty Index has plunged 28.53 per cent this year, followed by BSE Capital Goods Index and BSE Bankex, which fell 15.69 per cent and 6.97 per cent. BSE Auto Index remained flat.

Realty players such as Unitech, Indiabulls Real Estate, HDIL and DLF tumbled 53.63 per cent, 28.63 per cent, 26.64 per cent and 20.91 per cent.

In the capital goods space, Gammon India, Punj Lloyd, Bhel and Larsen & Toubro (L&T) tanked 50.50 per cent, 37.10 per cent, 20.92 per cent and 12.79 per cent, respectively.

Canara Bank, SBI, ICICI Bank and PNB fell 30.25 per cent, 16.69 per cent, 9.34 per cent and 7.99 per cent.

Auto stocks such as Maruti Suzuki, Bajaj Auto and M&M inched up 1.81 per cent, 1.50 per cent, and 0.43 per cent, respectively.