As per Jefferies India Pvt. as real interest rates on surplus liquidity turn negative for the first time since the year 2013, Indian investors will find their preference in dividend yielding stocks or other physical assets such as real estate and gold.
"Low yields and uncertain growth could drive outperformance of sustainable high-yielding stocks," Mumbai-based analysts Mahesh Nandurkar and Abhinav Sinha wrote in a note to clients.
Further the note pointed that RBI's efforts in bringing down the borrowing cost through purchase of bonds in the open market and by implementing unconventional tools such as Operation Twist is likely to drag yield on 10-year government bonds to below 5.5%. So, with consumer price inflation or CPI estimates at 5%, real interest rate, which is the difference between one-year government paper and inflation, is -1.3% as per Jefferies estimates.
So sectors providing opportunity to make dividend income include PSU companies, software exporters and consumer-centric stocks, said the analyst. And for the real estate, its attractiveness shall be based on the fact as to how long real rates continue to be in the negative territory.
"Indian residential property cycle has also seen subdued pricing for about seven years now, coinciding with the previous times of negative real rates. If the current negative real rates sustain, property markets can bottom out," the note said.
Jefferies Top Equity Picks In A Scenario When Real Interest Rates Turn Negative:
5. Bharat Electronics
6. Container Corporation of India Ltd
7. Mahanagar Gas