RBI’s new measures boost bourses, Sensex and Nifty make big gains

The Indian stock markets have posted major gains after the announcement of fresh liquidity measures by the Reserve Bank of India (RBI). The BSE Sensex gained 986.11 points or 3.22 percent and closed at 31,588.72 points. The NSE Nifty50 closed at 9,266.75 points, higher by 273.95 points or 3.05 per cent from its previous close. Rupee traded little stronger on the back of RBI liquidity measures.

Analysts said stock investors are rewarding Indian companies with a smaller debt burden as solvency has increasingly become a real threat. Banking shares were the hot favourites during the trade.

RBI Governor Shaktikanta Das on Friday announced a slew of fresh liquidity measures. To mitigate any economic fallout on financial liquidity due to COVID-19 pandemic, the RBI has announced a reduction in reverse repo rate by 25 basis points to 3.75 per cent, among other measures.

The Indian currency has been slightly volatile against the US dollar on Friday, it was trading at 76.58 per dollar.

According to analysts, the weakness has been largely due to bleak outlook for the Indian economy amid the coronavirus crisis and the voltile trade on the stock markets.

“This is due to the lower India growth forecast and also the lower interest rate in India. FII outflow was around $4.9 bilion of Indian shares so far in March and this is surpass the 2008 figures,” Anuj Gupta, DVP Commodities and Currencies Research, Angel Broking, said.

Gupta, however said that lower crude prices and good monsoon expectation may support the Indian economy further.

Interestingly, this volatility continues despite the reduction of trading hours in the forex market. The Reserve Bank of India on Thursday said the new market timings for the government bond and forex markets will be maintained till April 30.

Earlier, the RBI notified that market activities including the sales and purchase of G-secs will commence by 10 a.m. and end at 2 p.m. from April 7 to April 17 in a bid to curb volatility.

“In view of the Government of India’s order that the lockdown will continue till May 3, it has been decided that the amended trading hours for various RBI regulated markets will continue to be effective till the close of business on Thursday April 30,” the RBI said in a statement.

Meanwhile, the partial relaxation of the national lockdown to contain Covid 19 may only see a slow ramp up in industrial activity while some corporates may not restart operations immediately.

According to a research note by Jefferies, the partial relaxation of lockdown from April 20 comes across as a positive although it’s limited to select manufacturing activities and e-commerce. Greater freedom has been allowed in rural areas.

“Our initial checks with corporates indicate that production ramp-up will be slow and constrained by demand. Another positive for rural activities is a forecast of a normal monsoon. Both these developments should be a partial relief for investor sentiments,” it added.

The central government has proposed some relaxations to the nation-wide lockdown from post April 20. Key among these measures are opening up goods transport across country for all goods, waiver to the entire agricultural segment and its supply-chain, allowing industries in rural areas and in SEZs & designated industrial areas to function, starting construction works where labour is at site and allowing e-commerce full goods transport mobility.

These measures come as relief to the strict nation-wide lock-down in force since March 25, the report said. The report notes that state governments and companies may slow restart. There are several caveats to the above relaxations triggering immediate economic revival. Key among these being state governments and local administrations taking a much stricter line given their local COVID outbreak situations, the note said.

Social distancing rules such as spacing of workers in transport, separation of shifts and no public transport would still apply. Urban areas are also struggling with loss of migrant labour which has gone back to villages.

“Our feedback from companies suggest that restart of activities could be slower with likely sub 50% capacity utilization. Some corporate are indeed putting employee safety and well-being and are unlikely to resume operations soon,” the report said.

Also, lack of opening up of retail channels, barring online and existing high inventories means that several industries would prefer not to open-up immediately, Jefferies said.

Care Ratings said in a report that the services sectors have no provisions to benefit from and will be the last ones to receive the same. Transportation services (like railway, aviation), education services, leisure, hospitality and entertainment services could be the last ones to be removed from the lockdown restrictions.

Indo-Asian News Service