It is going to be a tricky decision for the Monetary Policy Committee, in its meeting later this week on whether to hike interest rates or not.
Consumer Price Inflation has already risen to 4.58 per cent for the month of April 2018. There is a 50 per cent chance of the RBI hiking interest rate in its policy decision.
If that happens, leveraged companies would stand to lose as financial costs or interest rates go higher. This means, zero debt companies would not be impacted. Here are a few such company stocks that you could buy.
SUN TV Network
This is a South Indian based television network channel, which is a debt free company. The company is also a solid dividend paying company, which has seen an exponential growth over the last few years. It has a strong viewership base in the south particularly Tamil Nadu, Karnataka and Andhra Pradesh.
It also owns the Hyderabad Franchisee of Sunrisers Hyderabad. The company haas been one of the biggest beneficiaries of digitization. With a target of 9 million homes for digitization, the company stands to benefit in terms of subscription.
SUN TV Network is also moving into producing films, which is likely to be beneficial given the free cash flow at the company. The stock is trading at around 25 times, one year forward earnings. This is a significant discount to stocks like Zee TV. Buy the stock with a price target of Rs 1200 in the next 1-2 years. Shares of SUN TV are currently trading at Rs 886.
NMDC is not only a debt free company, but, is also a cash rich one. This is a stock that has come down significantly in the last two weeks. The company recently reported an over two-fold rise in its standalone profit at Rs 1,105.8 crore for the March 2018 quarter.
The company had posted a standalone profit of Rs 511.8 crore in the year-ago period, the state owned iron ore miner states.
Its income increased to Rs 4,053.1 crore, over Rs 3,006.21 crore in the January-March quarter of FY17. NMDC is also good for its dividend yields. The company recently declared a dividend of Rs 4.3 per per share. It tends to declare dividend twice a year. Assuming it does one more time this year, it could end-up giving a yield of around 5 to 6 per cent. Not a bad debt free stock to buy ahead of the RBI's Monetary Policy Meet.
Shares of NMDC are currently trading at Rs 115
Avoid banking stocks
It is best to avoid banking stocks, given the possibility of an interest rate hike. These stocks may react negatively, given that a hike does not benefit them and there would be pressure on margins. The MPC decision would be known on June 6. Policy makers would be split between a decision on interest rate hike now or in the month of June. If not this month, a hike in the month of August is a near certainty. It is best to stay away from these set of stocks for the time being.