RBI Press Conference Takeaways, NIIT Tech's Buyback Offer, and Top Cues in Focus Today

Tue, 26 May Pre-Open

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Indian share markets ended on a negative note on Friday.

The Reserve Bank of India's (RBI) move to cut repo rate by 40 basis points (bps) failed to cheer markets.

Selling pressure was also seen as RBI Governor Shaktikanta Das said the GDP growth in FY21 is expected to be in negative territory.

Sectoral indices ended on a mixed note with stocks in the finance sector and banking sector witnessing selling pressure, while IT stocks and healthcare stocks ended in green.

At the closing bell on Friday, the BSE Sensex stood lower by 260 points and the NSE Nifty closed down by 67 points.

The BSE Mid Cap index and the BSE Small Cap index ended down by 0.8% and 0.2%, respectively.

Note that the coronavirus impact has shaken markets worldwide. After all, 2020 has already seen one of the worst market crashes in history.

Naturally, there is an atmosphere of fear all round.

Is it time to sell stocks now? Will the correction get worse?

History has shown that after years like the one we had just now, the next 3 years are good for the markets. In fact, these corrections are the rare times when you find businesses with solid fundamentals at reasonable valuations.

If you can find good businesses that can survive the current crisis, you will do well in the long run.

Speaking of the coronavirus crisis, Richa Agarwal, editor of our premium smallcap service Hidden Treasure, talks about robust smallcap businesses that are not just resilient but likely to emerge stronger from the coronavirus crisis.

Tune in to find out more...

Richa also recently spoke about her top 3 stocks at the Pathbreaking Profits Summit.

Thousands attended the summit. In case you missed it, you can still watch the video of the summit here or if you prefer, you can read the transcript here.

Top Stocks in Focus Today

From the banking sector, Bandhan Bank share price will be in focus today as the private lender said its services have been impacted in some areas of West Bengal and Odisha due to cyclone Amphan and the cyclone is likely to impact business worth Rs 2.6 billion.

As per estimate, the business of around 65,000 of its micro banking borrowers, amounting to an exposure of approximately Rs 2.6 billion could be impacted due to the cyclone.

From the finance sector, SBI Cards and Payment Services share price will be in focus today. The stock of the company witnessed huge selling pressure on Friday after the Reserve Bank of India (RBI) announced an extension of the moratorium on loan EMIs by three months. The non-banking finance company's stock was trading at its lowest level since listing on March 16, 2020.

Market participants will also be tracking Bosch share price, UPL share price, and JSW Steel share price as these companies announced their March quarter results (Q4FY20).

You can read our recently released Q4FY20 results of other companies here: Ultratech Cement, Bajaj Auto, L&T Infotech, Apollo Tyres, Ajanta Pharma, Jubilant Foodworks.

NIIT Technologies Buyback Offer to Commence on May 29

NIIT Technologies share price will be in focus today as the company announced that its Rs 3,374-million buyback offer will commence from May 29.

The company, in a regulatory filing, said that the regulator had provided an extension for dispatching the letter of offer within 15 days from the closure of the lockdown as mandated by the government.

The buyback offer will open on May 29 and close on June 11.

Last year in December, the company had said its board has approved a proposal to buy back up to 1.95 million fully paid-up equity shares of a face value of Rs 10 each at a price of up to Rs 1,725.

Earlier this month, the company's board also approved the change of name of the company from 'NIIT Technologies' to 'Coforge', subject to shareholders' approval and other necessary approvals, if any.

Note that last month, the markets regulator had eased the 12-month cooling-off period that companies have to observe between buybacks and equity fundraising.

A company is restricted from raising further capital for one year from the expiry of the buyback period.

The market regulator had said "to enable quicker access to capital, it has been decided to temporarily relax the period of restriction provided in regulation 24(i)(f) of the buyback regulations. Accordingly, the words "one year" shall be read as "six months" in the said regulation."

Many companies have launched share buybacks amid a sharp fall in their stock prices. Some of these companies include Motilal Oswal Financial Services, Delta Corp, Dalmia Bharat, Emami and Kalpataru Power.

Speaking of buybacks, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

As per Rahul Shah, co-head of Research, investors should not assume buybacks are always good. Here's an excerpt of what he wrote in one of the editions of The 5 Minute Wrapup:

• The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.

RBI's Repo Rate Cut and Takeaways from Press Conference

In a new set of measures to trim the impact of coronavirus on the economy, the Reserve Bank of India (RBI) on Friday last week decided to cut the repo rate by 40 basis points (bps) from 4.4% to 4%.

The reverse repo rate has been reduced to 3.35%.

RBI Governor Shaktikanta Das said that RBI's Monetary Policy Committee (MPC) met again from May 20-22. MPC voted to 5:1 majority to reduce the policy repo rate by 40 basis points.

The RBI also extended the moratorium on payment of loans by another three months till August to provide much-needed relief to borrowers.

Earlier in March, the apex bank had allowed a three-month moratorium on payment of all term loans due between March 1, 2020, and May 31, 2020.

As a result of this moratorium, individuals' EMI repayments of loans taken were not deducted from their bank accounts. The EMI payments will restart only once the moratorium time period expires on August 31.

Here are some key takeaways from RBI's press conference:

• RBI governor Shaktikanta Das said that the private consumption, which comprises 60% of the GDP, has taken the biggest hit. Both the demand compression and supply disruption has taken a toll on the economy.
• On economic growth in the current fiscal, the RBI projected negative growth with a pickup in growth impulses in second half.
• The special refinancing facility of Rs 150 billion to SIDBI at repo rate for 90 days for lending & refinance operations has been further rolled over for another 90 days at the end of initial 90 days period.
• The RBI said it will extend Rs 150 billion line of credit to EXIM Banker.
• The RBI increased export credit period to 15 months from 1 year.
• The governor said inflation outlook is highly uncertain due to the outbreak of the COVID-19 pandemic and expressed concern over elevated prices of pulses. He also said there is a need to review import duties to moderate prices.
• The Governor said that headline inflation may remain firm in the first half of the year and may ease in second half. He added that inflation may fall below 4% in the third or fourth quarter of the current fiscal.

Note that in March, the RBI governor had announced several measures to ease liquidity pressure in the banking system and to boost the economy from the coronavirus shock, including a sharp 75 basis points rate cut in March.

With the RBI cutting interest rates, the focus of market participants has now shifted to whether the RBI's decision will translate into better economic activity in the near term.

Speaking of RBI rate cuts, note that RBI's rate cuts have always had a big gap with bank lending rates. This is evident in the chart below...

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.

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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