Indian markets stayed in the green with 0.6 percent gains in the fourth straight session ahead of the Reserve Bank of India's bi-monthly policy review on Thursday. Financial sector stocks rallied after most lenders reported a surge in loan disbursement.
L&T traded up 3 percent followed by the HDFC twins and ITC Ltd. The HDFC twins climbed over 2 percent each, while Bajaj Finance and Bajaj Finserv gained nearly 1 percent each. At 11.49am, the benchmark Sensex was up 0.63 percent to 59,476 points, while Nifty advanced 0.55 percent to 17,494 points. In the last four trading sessions, the benchmarks jumped over 3 percent each.
Analysts are awaiting the RBI policy decision with an expected 25 basis points hike. They will also keep an eye on the commentary of the RBI policy after the OPEC's unexpected production cut and recent cut in growth rates by the Asian Development Bank and the World Bank.
Many central banks, including those in developed and emerging markets, have adopted a dovish stance amid concerns about the transmission of policy tightening to growth and the fear that "speed can kill".
As a result, there is an expectation that this cautious approach will also be reflected in the Reserve Bank of India's reaction function, particularly given the widening split within the Monetary Policy Committee.
Let's look check the factors that led to gains in the local equity markets on April 5.
Improved loan disbursement: The financial sector stocks gained after many of the lenders reported an increase in loan disbursement. Bajaj Finance disclosed a 20 percent rise in new loan bookings for the quarter ended on March 31, with 7.6 million bookings compared to 6.3 million a year back. Bajaj Finance reported the highest ever new loans of 29.6 million for the entire financial year 2022-23. In the same period, HDFC Bank's advances showed a 17 percent increase year-on-year, while deposits surged 21 percent. Analysts observed that HDFC Bank's overall loan growth was driven primarily by retail and commercial loans, with a positive trend in corporate loans as well.
PMI expansion: According to data released on April 3, India's manufacturing sector maintained its growth momentum in March, with the S&P Global Purchasing Managers' Index (PMI) rising to 56.4 from 55.3 in February. A reading above 50 denotes an expansion in activity, while a sub-50 score indicates contraction. This is the 21st consecutive month that India's manufacturing PMI has exceeded 50. The uptick in manufacturing activity is expected to boost the morale of policymakers who have seen the sector take a backseat in recent months while services activity has hit new highs. In February, the services PMI reached a 12-year high of 59.4, according to data released last month.
GST collections: According to data released by the finance ministry on April 1, monthly collection under the Goods and Services Tax (GST) regime surged 13 percent on-year to Rs 1.60 lakh crore. This is the second-highest monthly collection since the introduction of the indirect taxation system in July 2017, with the only higher collection being Rs 1.68 lakh crore in April of last year.
RBI monetary policy: The Reserve Bank of India is set to release its bi-monthly policy on Thursday, and it is anticipated that it will increase the benchmark repurchase rate by 25 basis points to 6.75 percent to address inflation, which has been cooling off in India's third-largest economy. A Bloomberg survey of 33 economists indicates that 26 expect the rate hike, while the remaining seven anticipate a hold. Governor Shaktikanta Das leads the Reserve Bank of India's six-member monetary policy committee. Additionally, the central bank's policy stance will be monitored closely, as some analysts predict a shift from last year's "withdrawal of accommodation" strategy to a neutral approach. Despite OPEC's unexpected production cut and lowering growth guidance by the Asian Development Bank and the World Bank, economists believe that it will not influence the central bank's decision.
Cut in growth rate: The World Bank and the Asian Development Bank recently lowered their growth forecasts for the current financial year, attributing the cause to global economic conditions and increased interest rates. The World Bank's latest India Development Update estimates the country's growth rate to be 6.3 percent in the current financial year, down from its previous forecast of 6.6 percent. Similarly, the Asian Development Bank's Asian Development Outlook predicts a GDP growth rate of 6.4 percent for the year, down from the earlier projection of 7.2 percent, followed by a recovery next year.
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