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Sensex Trades in Green; Pharma Stocks Witness Buying
Tue, 21 Nov 01:30 pm | Prasheel Vartak, TM Team

After opening the day on a positive note, the Indian share markets have continued the momentum and are currently trading comfortably in green. Sectoral indices are trading on a positive note, with stocks in the pharma sector and stocks in the consumer durables sector witnessing maximum buying interest.

The BSE Sensex is trading up 180 points (up 0.5%) and the NSE Nifty is trading up 52 points (up 0.5%). Meanwhile, the BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 65.01 to the US$.

In news about the economy, government bonds rallied the most in a year after the Reserve Bank of India (RBI) cancelled its open market operations (OMO) plans to sell bon to sell bonds.

The RBI scrapped plans to sell bonds in the open markets to absorb excess liquidity. The benchmark yield dipped 16 basis points Monday to close at 6.89%.

The RBI cancelled a bond sale via open market operation worth Rs 100 billion scheduled for Thursday citing evolving liquidity conditions. The central bank has been regularly selling bonds in the market to ensure that its policy remains effective. It has absorbed more than Rs. 900 billion in excess liquidity that has kept the market rates above the policy rate of 6%.

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The government bond market went through a volatile session after the first sovereign upgrade by Moody's Investors Service in more than a decade. The yield erased its initial gains after macro worries weighed on market participants.

It's pertinent to note that India's public debt is mostly funded internally. While scheduled commercial banks, insurance companies, provident funds, and RBI invest in 85% of the government bonds, there is a miniscule 4% participation by the overseas investors. Therefore, the rating upgrade has come in a bit late. What is ironical is that despite a benign business environment, the bond yields in India have been ascending. Since the global financial crisis, India's bond yields have firmed up by a whopping 1.7%, putting it in line with countries like South Africa and Russia whose economies are in a state of mess.

The Irony of India's Bond Market

In the short term, India's fiscal deficit is likely to remain high given the initial revenue losses due to GST, higher public spending on infrastructure, and the recapitalisation program for state-run banks. But in the long run, the economic reforms are likely to strengthen the economy and drive growth.

Moreover, the government remains committed to long term fiscal consolidation. Given Moody's thumbs up, its high time that bond markets desist from childish behaviour and adopt a rational long-term view of the country's fiscal situation instead.

Moving on to news from the logistics sector. In a major push for the sector, the government has granted infrastructure status to the logistics sector, making it easier for companies operating cold chains, industrial parks and warehousing facilities to raise long-term credit from banks and other financial institutions at low rates, and attract foreign investment.

This is a positive move for developing an integrated logistics framework in the country.

Considering a proposal by the commerce ministry, the finance ministry decided to include logistics in the master list of infrastructure sub-sectors.

The government has defined "logistics infrastructure" to include a multimodal logistics park comprising an inland container depot (ICD) with a minimum investment of Rs 500 million and minimum area of 10 acre, a cold chain facility with a minimum investment of Rs 150 million and minimum area of 20,000 sq. ft and a warehousing facility with a minimum investment of Rs 250 million and a minimum area of 100,000 sq ft.

Development of logistics will give a boost to both domestic and export markets. The decision will enable the logistics sector to access infrastructure lending at easier terms with enhanced limits, larger amounts of funds as external commercial borrowings (ECB), longer tenor funds from insurance companies and pension funds and also make it eligible to borrow from the India Infrastructure Financing Co. Ltd (IIFCL).

In 2017, India's logistics performance improved from 54 to 35 under World Bank Logistics Performance Index (LPI). The government expects the Indian logistics sector to grow to US$ 360 billion by 2032 from the current US$ 115 billion.

Leading logistics players have welcomed the government's decision saying the move will help them raise funds at a lower cost which in turn will help reduce the overall transportation cost. The industry expects the move to lead to a 50 basis points gain for logistics players in terms of finance costs.

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