Rupee to open strong; bank, NBFC stocks to take beating

The big cue for our market today is the set of measures announced by the Reserve Bank of India (RBI) on Tuesday evening to suck out liquidity and stabilise the falling rupee. The central bank has reduced the liquidity adjustment facility (LAF) for each bank from 1 percent of the total deposits to 0.5 per cent, thus limiting the access to borrowed funds from the central bank. The limit will come into force with immediate effect and continue till further notice.

Impact on currency, bond market One can expect interest rates and yields across the curve to go up. The call rate which was closer to 7.5 will open at 10.25 today, says CNBC-TV18’s Latha Venkatesh. The yield on the 10-year, which was closer 8 percent will probably go to 8.75 percent or thereabouts. So, all across yield curve interest rates will go up hence commercial papers (CPs) and certificate of deposits (CDs) will move up by few percentage points. The currencies should open flat to little lower, but do not expect too big reaction in the currency. The rupee will open stronger, but thereafter much will depend on what view foreign institutional investors (FIIs) in the market take of RBI’s steps, she added. Banking stocks and non banking financial companies (NBFCs) stocks will get a beating, there will be mark to market (MTM) losses, net interest margin (NIM) compression and there will be rise in wholesale cost of money for all these entities. Therefore, one should brace for reaction on all financial stocks.