Despite the Reserve Bank of India (RBI) announcing several measures to mitigate the impact of the Coronavirus (also known as Covid-19) spread, the markets on Friday ended flat after huge rallies in the past three days.
Both the benchmark indices—the BSE Sensex and the Nifty 50—opened on a positive note on Friday following the ₹1.70-lakh crore relief package announced by finance minister Nirmala Sitharaman yesterday. While the 30-share S&P BSE Sensex opened at 30,747.81 points, 801 points, or 2.66%, higher than Thursday’s close of 29,946.77 points, the broader Nifty 50 opened at 8,949.1 points, 307 points, or 3.56%, higher than the previous day’s close of 8,641.45 points.
Reason: The RBI had flashed that the central bank governor, Shaktikanta Das would be addressing media at 10.00 a.m. And, when Das began his address it turned out that the central bank’s monetary policy committee (MPC) members who were scheduled to meet next week had advanced their meeting to March 24, 26, and 27 in view of the Covid-19 pandemic.
What followed from Das through his address were a slew of measures. This included a 75-basis point (bps) cut in the repo rate (the rate at which banks borrow from the RBI); a 90-bps cut in reverse repo rate (the rate at which banks lend their surplus to the RBI); a 100-bps cut in the cash reserve ratio (a portion of banks’ net demand and time liabilities or NDTL, which are parked with the RBI) from 4% to 3% of NDTL; a three-month moratorium in repayment of term loans; and a deferment of a similar duration in payment of interest on working capital loans.
Through these and other measures, the RBI will inject ₹3.74 lakh crore worth of liquidity into the financial system to help face the Covid-19 pandemic. “We are living through an extraordinary and unprecedented situation,” Das said in his address, adding that everything hinges on the depth of the Covid-19 outbreak, its spread, and its duration. “Clearly, a war effort has to be mounted and is being mounted to combat the virus, involving both conventional and unconventional measures in a continuous battle-ready mode.”
Das also spelt out that since the last MPC meeting in February, the RBI had injected liquidity of ₹2.8 lakh crore through various instruments, equivalent to 1.4% of the country’s gross domestic product (GDP). “Together with the measures announced today, the RBI’s liquidity injection works out to about 3.2% of the GDP,” said Das.
But the equity markets were all but pleased. Through the RBI governor's address, both the Sensex and Nifty 50 traded approximately 2% higher than their Thursday’s closing. At the day’s high, the Sensex and Nifty 50 gained 1,179 points (+3.94%) and 397 points (+4.6%), respectively; at the day’s low, the respective indices fell 599 points (-2%) and 118 points (-1.37%), respectively.
At close, the Sensex lost over 131 points (-0.44%), while the Nifty 50 gained 18.8 points (+0.22%), thus closing the week on a flat note. However, what is worth noting is the fact that the week saw carnage in the beginning, when the benchmark indices fell over 13% each at close on Monday, before triggering a 10% lower circuit and accompanying trading halt of 45 minutes.
However, at Friday’s high of 31,126.03, the Sensex recovered over 5,478 points (+21.4%) from its 52-week low of 25,638.9 points on March 24. And at today’s low of 29,346.99 points, the recovery from its 52-week low was 3,708 points (+14.46%). Considering the same indicators, the Nifty 50 recovered 1,527 points (+20.3%) and 1,011 points (+13.47%), respectively over its 52-week low of 7,511.1 points on March 24.
In reaction to Friday’s benchmark indices movements, Amit Shah, technical research analyst at Indiabulls Securities, said that the Nifty 50 rallied sharply towards 9,000 but retreated and closed flattish. “We continue to remain bullish in the near term and once the Nifty 50 breaches the 9,000-level resistance on a sustainable basis, it is likely to target the 9,300-9,500 zone on the upside,” said Shah, who expects the rally to continue after some pause.
According to Ajit Mishra, vice president-research at Religare Broking, the markets were volatile and finally settled on a flat note, taking a breather after the recent recovery. “The benchmark indices opened higher. However, its gains soon fizzled out despite big and bold moves announced by the RBI to address liquidity needs and ensure financial stability,” said Mishra. He asked to maintain a cautious approach and prefer only hedged bets until some stability in the market. “Also, we advise continuing largely with the index majors.”
On the current valuations, Sanjeev Zarbade, vice president of private client group at Kotak Securities, highlighted that foreign portfolio investors (FPIs) sold equities worth $2.6 billion over the past five trading sessions, while the domestic institutional investors (DIIs) bought $1.7 billion worth of equities in the same period. “While valuations have now become reasonable and in some stocks attractive as well, investors should select stocks that have the balance sheet strength to sustain the severe near-term economic pain,” Zarbade advised. “Upside/downside in the markets would depend upon the duration of the ongoing nationwide shutdown,” he added.
On the RBI’s MPC actions, Jimeet Modi, founder and CEO of Samco Securities, said that the central bank with its monetary policy tools has done what was expected. “But in such uncertain times, instead of fresh funds, entities want to save their skin,” he said. “The RBI’s relaxation of only three months, instead of six months, for a moratorium on interest on loans and working capital, has disappointed many,” Modi added.
Modi also hailed the RBI for playing every card in its pocket to prevent a crisis-like situation by giving banks the ability to lend more, but as such no direct helping hand had been given to ailing industries as of now. “Overall good (moves) but the capital market is disappointed,” he pointed out.
The finance minister as well as the prime minister have separately hailed the central bank for the measures, which are bold enough to be labelled as bazooka measures. But the markets are still trying to find their ground and hoping for further moves which would help sectors that are going to bleed through the corona-led crisis and the unprecedented three-week nationwide lockdown the government has imposed to contain and fight the pandemic.
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