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'Banking, NBFC stocks to remain in focus after RBI booster shot'

Banking and NBFC stocks shall remain in focus as they are likely to benefit the most from the measures announced by the RBI, Gaurav Garg has told Moneycontrol.

April 19, 2020 / 10:38 AM IST

Banking and NBFC stocks will remain in focus as they are likely to benefit the most from the measures announced by the Reserve Bank of India (RBI), Gaurav Garg, Head of Research at CapitalVia Global Research Limited - Investment Advisor, said in an interview with Moneycontrol’s Kshitij Anand.

Garg also said that Bank Nifty is likely to test its level of 21,450 in the coming week.

Here are the edited excerpts:

Q. What are your views on the RBI bazooka 2.0? Is it enough to propel the economy or are these just some of the steps take in the right direction? What kind of impact will it have on the markets and what are the sectors that will benefit?

A. The RBI has announced the second tranche of measures to boost the liquidity into the system. In the case of liquidity measure, the central bank has majorly focused on two instruments.

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As of April 15, the banks are having a surplus of Rs 6.9 lakh crore under reverse repo window and RBI has decided to inject this amount into the public by reducing the reverse repo rate 25 basis points or 0.25 percent which come down to 3.75 percent from 4 percent earlier and maintaining the repo rate at 4.4 percent.

It has announced Rs. 50,000 crore worth of Targeted Long Term Repo Operations (TLTRO) which will be mainly focused on the worst-hit NBFC sector.

In addition to that, the Reserve Bank has also reduced the requirement of Liquidity Coverage Ratio (LCR) of scheduled commercial banks to 80 percent from 100 percent which helps the financial institutions to lend more. This will be restored in two phases one in October 2020 by 90 percent and 100 percent by April 2021.

The RBI has stated that a special refinance facility worth of Rs 50,000 crores will be provided to the financial intuitions like NABARD, SIDBI and NHB to boost the liquidity in those sectors.

The announcement of the rate cut in reverse repo rate is much need for the economy to inject the liquidity into the financial institutions. NBFC and real estate sectors are highly likely to benefit.

Q. Do you think the markets await more fiscal measures that could support the economy?

A. The government is focusing on how to curb the spread of the novel coronavirus and to save lives of millions. The measures announced by the government majorly focus on the people who are not earning anything at all, and that number is very large.

The worst-hit sectors during this nationwide lockdown are aviation, transportation and tourism.

The companies in these sectors may become bankrupt if there is no relief package by the government which directly leads to the high NPA and impact on the banking sector.

Q. D-Street closed flat but there was a lot of volatility in the market. Stimulus hopes back home, as well as positive global cues, helped the markets. Do you think momentum is likely to sustain?

A. Positive global sentiments have given Nifty a push and placed it above the levels of 9,100-9,200, which it was unable to scale from past few sessions and though D-Street had a flat closing, the market was a roller coaster.

The market closed above the level of 9,200 and therefore this momentum is likely to sustain which has also been fueled by the policy introduced by RBI.

Q. What are the important levels which one should track in the coming week?

A. The liquidity-boosting measures announced by the RBI on the back of positive global cues boosted the markets on April 17.

These measures to ease liquidity and bolster some of the coronavirus pain helped the Sensex and the Nifty climb above crucial resistance levels. Nifty has formed a ‘Hanging Man’ pattern in its daily charts.

However, Nifty has a support level at 9,090 followed by 8,820 whereas 9,320 and 9,510 would act as important resistance levels in the coming week.

Q. What is your call on NiftyBank, especially after the measures that could benefit the banking space/Nifty Financial services were announced?

A. The Reserve Bank's latest announcements to infuse liquidity and expand bank credit are expected to provide big relief to the Non-Banking Financial Sector (NFBCs) as 50 percent of the proposed TLTRO will be invested in small and mid-sized NBFCs and MFIs.

The RBI has also relaxed NPA recognition norms for NBFCs. Banks would also get relaxation on Special mentioned accounts, which are unpaid with 60-90 days as in March, but have to make 10 percent provisioning against such standstill accounts.

The 25 bps cut in reverse repo rate to 3.75 percent would further provide liquidity into the system as it would make banks reluctant to invest money at a lower rate with RBI.

Banking and NBFC stocks shall remain in focus as they are likely to benefit the most from the measures announced by the central bank. Bank Nifty is likely to test its level of 21,450 in the coming week.

Q. Small and midcaps outperform in the week gone by — what is leading to this outperformance? Is it the beaten-down nature or the possibility of stimulus measures that could support the broader markets?

A. Small and midcaps have taken a lot of toll in the past few months blood bath and have arrived at the level from where further downtrend is unlikely as they have gone too far from their fair value and the past week has also seen Nifty trying to recover and which aided in the rally.

The stimulus measures announced by the RBI Governor was also mainly focused on small and midcaps along with MSMEs and therefore it can be said that the stimulus measures taken played a role of catalyst and are likely to support broader markets.

Q. Any two-three stocks that are looking attractive for a medium to a long term time frame?

A. Stocks like Avenue Supermarts Limited, Reliance Industries Limited, Maruti Suzuki India Limited, SRF Limited, Tata Consultancy Services Limited and Indiabulls Housing Finance Limited can be considered as good buys for the near future, keeping in view their strong fundamentals, investor sentiments as well as their attractive valuations.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Disclaimer: Reliance Industries Ltd, which owns Jio, is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
Kshitij Anand is the Editor Markets at Moneycontrol.

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