The Reserve Bank of India (RBI) will announce its monetary policy tomorrow at 10 am. The announcement will be the first credit policy of the new RBI Governor Sanjay Malhotra. The market is expected to cut interest rates for the first time after five years.

This decision will not only affect the borrowers, but will also depend on the move of many sectors and shares. Major brokerage firms have released their reports regarding possible changes in interest rates. Let us know which sectors and companies will benefit from this and who can have negative effects.

Possibility of cutting interest rates

Economists, bankers and industry leaders involved in the voice MPC (Monetary Policy Committee) believe that RBI can cut interest rates by 0.25% this time.

The main reasons behind this are:

• Control of inflation: The target of reducing financial deficit in the budget will prove to be helpful for RBI.
• The fall in the rupee is not a big concern: Experts believe that RBI will not pay much attention to it.
• Focus on growth: This time RBI can bring softening rates to promote growth.

Which sectors will benefit from the cut in interest rates?

1. NBFC (Non-Banking Financial Companies)-the biggest advantage

Both HSBC and Morgan Stanley believe that the NBFC sector will benefit the most. Especially companies that are included in vehicles finance, gold loan and credit card business.

• HSBC top pics:
  • Chola Investment
  • Shriram finance
  • M & M Financial Services
• Morgan Stanley’s Top Pix:
  • M & M Financial
  • SBI Cards
  • PNB Housing Finance
  • Shriram finance
  • Bajaj finance
  • Home First Finance
  • Aptus Value Housing

2. Small Finance Bank – Can perform well

HSBC believes that small finance banks will also benefit from cutting interest rates.

• Benefits banks:
  • Indusind bank
  • Equitas small finance bank
  • Ujjivan Small Finance Bank

3. Auto and Consumer Loan Sector – Demand will increase due to cheap debt

• Interest rate cuts will benefit automobile finance companies and consumer loan providers.
• Demand may increase due to cheap vehicle finance and home loans.

Which sectors can be affected?

1. Housing finance companies damage

According to Morgan Stanley report, cuts cuts may have negative effects on housing finance companies (HFCs).

• LIC Housing Finance will have the most impact.

2. Public banks do not benefit much

HSBC believes that public sector banks will not benefit much from interest rate cuts, as their balance sheet is stronger than before and they do not get big revenue from the loan.

Impact on market-Stocks fluctuate possible

• If interest rates decrease, shares of NBFC, Small Finance Bank and Consumer Loan Companies may see a boom.
• If the RBI does not cut rates, the market can spread disappointment, which can cause pressure on banking and finance sector stocks.

Should investors be vigilant?

Existing interest rates and potential deduction expectations in the market are already connected. If RBI does not cut rates, it can be a negative signal for the market.

Important things for investors:

Investments in NBFCs and auto finance companies may increase.
Housing finance companies may decline.
Government banks will not have much effect.