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Indian Indices Witness Volatility, RBI Policy Meet Takeaways, and Top Cues in Focus Today
Mon, 30 Mar Pre-Open | Monish Vora, TM Team

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It was a volatile day for India share markets on Friday. The benchmark indices opened higher but turned volatile and erased most of the gains thereafter, even after the RBI in its MPC meet cut the repo rate by 75 bps to 4.40%.

Losses were seen as market participants turned cautious after RBI Governor Shaktikanta Das said that there's a rising probability that large parts of the global economy will slip into recession.

At the closing bell on Friday, the BSE Sensex stood lower by 131 points (down 0.4%) and the NSE Nifty stood up by 18 points (up 0.2%).

The BSE Mid Cap index ended down 0.3%, while the BSE Small Cap index stood up by 0.3%.

Most of the sectoral indices ended in the red with stocks in the telecom sector, auto sector and oil & gas sector witnessing maximum selling pressure.

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Note that the Indian stock market has fallen 36% in just over a month. However, Vijay Bhambwani's subscribers have been saved from a lot of pain in this market.

He's had 16 out of 22 profitable trades in these difficult times and his last 11 trades, over the last six months, have been profitable. He has delivered a return on investment of 42.95% for his subscribers at a time like this when everyone is barely managing to stay afloat due to daily losses.

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Also, a few days ago, we asked you to participate in Equitymaster's "State of the Markets" poll.

The poll asked you to vote on what holds next for the Indian stock markets amid the gloomy economy and coronavirus fears.

Many of you voted for the same and we thank you for participating. The numbers are in and here are the results.

Key Takeaways from RBI Policy Decision

The RBI on Friday lowered the key repo rate by 75 basis points (bps) to 4.4%. The move is to help arrest the economic slowdown in the wake of the coronavirus outbreak.

Here are some of the key takeaways from the RBI policy decision:

The RBI made a sizeable cut in repo rate. It slashed the repo rate by 75 bps. The reverse repo was also reduced by 90 bps and now stands at 4%. This has made the repo rate falling to the lowest ever. Before this, it had hit the lowest point of 4.74% in April 2009 in the wake of the global financial crisis.

Meanwhile, the cash reserve ratio (CRR) has been slashed by 100 bps to 3%.

The six-member Monetary Policy Committee (MPC) voted 4-2 in favour of the reduction of the repo rate by 75 bps, RBI Governor Shaktikanta Das said in an address to media.

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The RBI also allowed banks and other lending institutions to extend the repayment schedule and moratorium by three months to avoid large NPAs and reduce risk weights.

The RBI said that the coronavirus pandemic will affect the growth of most sectors. Referring to the illness, Shaktikanta Das said that apart from continuing resilience from agriculture and allied sectors, most sectors of the economy will be adversely impacted by COVID-19, depending upon its intensity, spread and duration.

For liquidity measures, Das said that large selloffs in markets have intensified redemption pressure. The RBI will conduct auctions of long-term repo operation (LTRO) of up to three-year tenure of appropriate sizes for a total amount up to Rs 1 lakh crore at a floating rate linked to the policy repo rate

Deferment of interest on working capital facilities was also announced. As per the RBI, Lending institutions can defer by three months payment of interest outstanding as on March 1 on working capital facilities sanctioned in the form of cash-credit and overdraft and such. The accumulated interest for the period will be paid at the end of the deferment period.

Note that many other central banks have been taking similar measures to relieve their economy from the escalating global coronavirus pandemic.

Earlier this month, the US Federal Reserve lowered the interest rates, bringing it near zero, in another emergency move to help shore up the US economy. The Fed had cut interest rates by half a percentage point on March 3, too, in its first emergency cut since the financial crisis of 2008.

The Reserve Bank of New Zealand (RBA) slashed interest rates by 75 bps to a record low. The Reserve Bank of Australia poured US$ 3.6 billion in liquidity into Australia's financial system and said it was prepared to buy government bonds.

We have written a piece around how deep this impact has been felt in the global financial markets. You can check out the same here: Worst Week for Global Stock Markets: Coronavirus Impact in 10 Points

Speaking of the Indian economy, with the RBI cutting rates by a whopping 75 points, the focus of market participants has now shifted to whether the RBI's rate cut will translate into better economic activity in the near term.

Like this chart shows, RBI rate cuts have always had a big gap with bank lending rates.

Yet Another RBI Rate Cut May Not Result in Lower Lending Rates

Here's what Tanushree Banerjee wrote about it in one of the editions of The 5 Minute WrapUp...

  • It will be a while before lower lending rates stoke the economy.

    Therefore, hoping for an immediate revival in the economy is futile. The RBI has no magic wand to do this.

    Rather look for stocks that can outperform irrespective of the RBI policy.

    I believe the cement sector may be a good place to start.

    One of my recent recommendations from the sector is a typical Rebirth of India stock.

    And I won't be surprised if it repeats its 2002-2006 performance.

Coronavirus to Bring Difficulties for Indian Banks

As per ratings agency Fitch, the coronavirus-related worries are likely to aggravate difficulties for Indian banks, revising down the operating environment score for the critical sector by a notch.

The score has been revised to "BB" from "BB " earlier, pointing out that COVID-19 outbreak ups the worries for the sector, which is already reeling under weak business and consumer confidence.

The outlook on the score is "negative", given the uncertainty surrounding the severity and duration of the pandemic, and the associated effects on India's banks of restrictions on economic activity.

The operating environment score was last revised down in 2019 due to the weakness in business and consumer confidence.

The lockdown will impact industrial production and domestic demand. This will exacerbate the economic slowdown of the past few quarters that was partly caused by weaker credit availability from non-bank lenders from September 2018.

It however said the closed nature will help restrict the impact on economic growth in India as compared with Asian peers.

As per the report, Indian banking system is under-capitalised and continues to saddle with bad loans, despite some successes.

It also warned that the retail segment, especially the unsecured ones, may face headwinds as unemployment rises.

Now, how this pans out going forward remains to be seen.

Yes Bank Increases its Fundraising Size

In news from the banking sector, Yes Bank said it has increased its fundraising size to Rs 150 billion from Rs 100 billion.

The bank said it will raise the additional amount through shares, ADRs, GDRs or convertible bonds.

Yes Bank has already raised over Rs 100 billion from State Bank of India (SBI) and other key banks and financial institutions through sale of equity under its reconstruction plan approved by the government and the Reserve Bank of India (RBI).

The RBI has also extended a Rs 600-billion credit line to the private lender for meeting obligations.

In one of the articles, we have written about the entire timeline of how YES Bank went from a stock market darling to a pariah. Read the article here: How the YES Bank Collapse Unfolded - 10 Points.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Stock Market Updates

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