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RBI liquidity push clouded by coronavirus fear, fails to cheer markets

"Overall good but capital market is disappointed," Jimeet Modi says.

March 27, 2020 / 08:54 PM IST

The Reserve Bank of India on March 27 announced a raft of measures that will infuse an additional Rs 3.7 lakh crore into the banking system to boost the economy but the decisions failed to cheer capital markets.

The BSE Sensex was trading more than 1,700 points lower from the day's high at 29,416.46, down 530.31 points, or 1.77 percent, at the time of writing of this copy. The Nifty50 fell from 9,000 to 8,545.85, down 95.60 points or 1.11 percent.

The RBI joined other central banks when it cut repo rate by 75bp to 4.4 percent, the lowest ever, and the cash reserve ratio by 100bp to 3 percent along with other liquidity measures.

Since the last MPC meeting of February 2020, the central bank has injected liquidity of Rs 2.8 lakh crore through various instruments, equivalent to 1.4 percent of GDP. Together with the measures announced on March 27, the RBI's liquidity injection works out to about 3.2 percent of GDP, a release said.


The market welcomed the big rate cut with liquidity measures but seems to be looking at greater moratorium period for term loans and direct helping hand, experts say.

"The RBI with its monetary policy tools has done what was expected, infuse liquidity of Rs 3.74 lakh crore (3.2 percent of GDP) through a cut in CRR by 1 percent, interest rate reduction by 75 bps to 4.4 percent and other liquidity boosting instruments to ease fund-raising concerns in the short term," said Jimeet Modi, Founder & CEO, Samco Securities.

But in such uncertain times instead of fresh funds, entities want to save their skin, RBI's relaxation of only three months instead of six months on interest on loans and working capital had disappointed many, he said.

The RBI was playing every card in its pocket to prevent a crisis-like situation but as such no direct helping hand was given to ailing industries, as of now, Modi said.

"Overall good but capital market is disappointed," he said.

The Reserve Bank permitted all commercial banks, co-operative banks, all-India financial institutions, and NBFCs to allow a moratorium of three months on payment of instalments of term loans outstanding as on March 1, 2020.

In respect of working capital facilities sanctioned in the form of cash credit/overdraft, the RBI also permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020.

"The accumulated interest for the period will be paid after the expiry of the deferment period. The moratorium on term loans and the deferring of interest payments on working capital will not result in asset classification downgrade," said the Reserve Bank.

The no mention of inflation and growth forecast in the policy meeting that was brought forward also dented sentiment, say experts.

"RBI announced steps to flood the market with cheaper funds in a bid to mitigate the pain of the coronavirus-induced lockdown of the economy. However, these measures failed to enthuse the market," Sundar Sanmukhani, Head of Fundamental Research Desk at Choice Broking, said.

"Sentiments got dented as RBI governor refrained from making any projections for growth and inflation and admitted that GDP growth projected of 5 percent for FY20 was at risk."

Investors feared that unless India managed to contain the virus either via social distancing or some medicine, there was a big risk of further deterioration in the conditions, Sanmukhani said. "Stimulus won't do much," he said.

Vikas Jain, Senior Research Analyst at Reliance Securities, said the bleak outlook from the Reserve Bank of India brought the market down, as investors booked profit after three days of rise.

"The uncertainty will keep the markets nervous and going ahead markets would now focus more on global cues and fresh news flow of COVID-19 pandemic. Any decline near to 8,400 levels would be a good opportunity to go for fresh longs," he said.

The market has fallen more than 30 percent from its record high in January after he virus spread rapidly outside of China.

"There are some signs that we have made a probable bottom around 7,500 level on the Nifty as the market has discounted almost worst-case scenario but volatility will continue in tandem with global markets where the trend in coronavirus cases globally and locally will dictate the further direction of the market," Santosh Meena, Senior Analyst, TradingBells said.

On the third day of the 21-day nationwide lockdown, the number of reported infections in India rose to 724. Seventeen people have died of the virus.

Globally, more than 5 lakh people have been infected and at least 24,000 have died of the outbreak that started in China late last year.
Sunil Shankar Matkar
first published: Mar 27, 2020 03:00 pm
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