Sensex Ends 362 Points Higher on RBI Loan Recast; IT and FMCG Stocks Rally

Thu, 6 Aug Closing

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Indian share markets ended on a positive note today after the RBI kept the repo rate unchanged at 4%.

At the closing bell, the BSE Sensex stood higher by 362 points (up 1%).

The NSE Nifty closed higher by 98 points (up 0.9%).

The SGX Nifty was trading at 11,213, up by 97 points, at the time of writing.

The BSE Mid Cap index ended up by 0.8%.

The BSE Small Cap index ended up by 1%.

On the sectoral front, gains were largely seen in the IT sector and FMCG sector.

Asian stock markets ended on a mixed note. As of the most recent closing prices, the Hang Seng ended down by 0.69% and the Shanghai Composite stood higher by 0.26%. The Nikkei ended down by 0.43%.

The rupee was trading at 74.93 against the US$.

Gold prices are currently trading up by 0.9% at Rs 55,580 per 10 grams.

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In news from the macroeconomic space, the Reserve Bank of India (RBI) kept repo rate unchanged at 4% today in its second bi-monthly monetary policy meeting for FY21. It maintained the stance as 'accommodative'.

RBI has already cut interest rates by 115 basis points this year, taking the repo rate down to 4%, the lowest since it was introduced in 2000.

Real GDP growth will remain in the negative, the governor said. However, he said that any positive news on the COVID-19 containment efforts would change this scenario.

On the economic growth front, Governor Das said, without putting any number to it, that India's real gross domestic product would contract in the first half of FY21 as well as full financial year.

The governor also announced a one-time restructuring for all loans across sectors affected by the pandemic.

Borrowers whose accounts were classified as standard will be eligible for the restructuring, provided they didn't default for more than 30 days with any lending institution as on March 1, 2020.

Also, banks can invoke the resolution plan till December 31, 2020, which will have to be implemented within 180 days from the date of invocation.

Thirdly, lenders shall have to keep additional provisions of 10% on the post-resolution debt. Banks not signing the inter-creditor agreement (ICA) within 30 days from the date of invocation shall attract higher provisions of 20%.

The central bank has said stressed that micro, small and medium enterprises (MSME) will be eligible under the existing framework, provided their accounts were classified as standard as on March 1, 2020. This restructuring will have to be implemented by March 31, 2021. However, there is already a debt restructuring scheme going on for MSMEs.

Apart from the above, the RBI Governor also eased the loan-to-value ratio for gold loans to 90% from 75%. So far, as per RBI guidelines, loans given by the banks against gold ornament for non-agricultural purposes could not exceed 75% of the value of gold ornament or jewellery pledged.

With the above development, banks and NBFCs can heave a sigh of relief with the RBI finally acknowledging their concern and admitting the demand for a one-time restructuring package.

By allowing restructuring, the regulator allows banks to relax terms of a loan that can be done either by extending the payment period, cutting the rate of interest or by offering a payment holiday.

How all this pan out remains to be seen. We will keep you updated on the latest developments from this space. Stay tuned.

Moving on, Federal Bank share price was among the top buzzing stocks today as it was reported that the lender is going to buy an additional stake of up to 4% per cent in IDBI Federal Life at Rs 27.56 per share.

IDBI Federal Life Insurance is a three-way joint-venture of IDBI Bank, Federal Bank and Ageas, a multinational insurance giant based out of Europe.

Blue Star share price was also in focus as the air conditioning and commercial refrigeration major reported a net loss Rs 196 million in the first quarter of the current financial year as compared to a net profit of Rs 768 million in Q1 FY20.

The company said swift actions taken to reduce operating costs helped mitigate the adverse profitability impact to a large extent.

Revenue from operations plunged to Rs 6.2 billion for the quarter ended June 30 as compared to Rs 15.7 billion during the same period of the previous year due to economic disruption caused by the on-going Covid-19 pandemic.

Finance costs increased to Rs 185 million from Rs 82 million in Q1FY20 due to additional borrowings and increased cost of funds.

The company raised Rs 3.5 billion during the quarter through the issuance of non-convertible debentures to fund working capital and to build liquidity on the balance sheet.

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

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