Rate cut: Buy stocks from auto, banking & infrastructure sectors

A cut in interest rates is going to benefit the stock market in three ways. First, it will reduce the cost of capital for companies and shore up their bottom lines. Second, it will boost demand for products, especially big-ticket items that are bought on credit. Third, it will make equity more attractive as an investment and, therefore, more money will flow into the equity market.
However, this doesn't mean every stock will make money when the rates are cut. The market is aware that rates will be cut and stocks have moved based on this expectation. The moot question is how much of the rate cut has been factored into the stock prices and if there is still a probability of further rise in prices when the rates are actually cut.
There is not much scope left when you look at the broader market. "Most of the immediate rate reduction expectations are already in the prices, so investors need to wait for a correction before getting in," says Rajesh Jain, EVP & head of retail research, Religare Securities. "The market may continue to move up after this correction and we are maintaining our year-end target of 7,000 for the Nifty," he adds.
However, experts believe that rate-sensitive sectors still have some steam left and could offer good returns when the rates are cut. This should not be seen as a short-term gambit. You would be buying at higher prices, so be ready to hold for the long term. One can also wait for a broader market correction before getting in.

Here's a look at the rate-sensitive sectors that may do well.