Indian benchmark indices fell almost by ~1% this week.
While most media outlets quoted a collective disappointment among markets when the INR 20 Lakh Crore bazooka remained muted on explicit measures pertaining to large corporates and banks like the one-time loan restructuring. However, in our opinion, the market priced in over-exuberantly and the announcement did not quite match expectations (like almost every other time the Ministry of Finance announces measures/reforms)
Key Event of the week:
While investors continued to pray for a ray of hope, RBI’s follow on committee meeting & the decisions made by the committee seemed to contain the downturn – or at least, did not contribute to additional downward pressure.
Since the very inception of the pandemic, like every other Global Central Bank, even RBI did not hold back. With a slew of measures & reformatory announcements it ensured that spirits & economics continued to remain closer to buoyancy than difficulty.
Here’s a brief account of the latest basket of announcements made by the RBI.
Policy rates slashed by 40 bps to 4% and reverse repo by the same quantum to 3.35%.
Simplify: Repo rate is the interest rate at which RBI lends money to banks. The reduction in repo rate means that the banks can borrow money from RBI at cheaper cost and is expected to pass the benefit to their customers/borrowers by reducing the interest rate on their loans.
A lower lending rate typically should translate into an additional influx of liquidity into the economy, albeit given that the transmission happens effectively. The reduction in reverse repo rate makes it unattractive for commercial banks to deposit with RBI and nudge it towards lending. Banks are unwilling to lend and are parking as much as INR. 8.5 lakh crore with RBI, this reduction may lead to marginal increase in lending.
Loan moratorium will be extended by three months till August 31, making it a six-month moratorium.
Impact: Banks had been explicitly lobbying for an incremental 3-month moratorium given the already sluggish credit offtake and as businesses are yet limping towards full operations. The incremental moratorium came in as a mini victory for the bank lobby subject to a similar extension to NPA classification. This is a welcome move even for small businesses and individuals struggling with liquidity amidst the economic slump.
RBI announces special refinance facility of INR.15, 000 crore to SIDBI
Impact: The small industries and development bank of India plays an important role in longterm funding equirements of small industries. At present, small industries are facing difficulties in raising money from banks and this extension to SIDBI will help providing cushion to small industries.
Growth Projection by RBI
In the central bank’s own assessment, growth is likely to be negative in FY21 (contrary to the IMF’s last projection of 1.9 percent). According to RBI, even though the lockdown may get lifted by end-May with some restrictions, economic activity even in Q2 may remain subdued due to social distancing measures and the temporary shortage of labour. Recovery in economic activity is expected to begin in Q3 and gain momentum in Q4.
Key Takeaway: In short, RBI is leaving no stone unturned to prop up a sagging economy with lower rates and ease of money flow. It has perhaps done its bit well enough.
Corona Update
Corona Virus Vaccine From Moderna Shows Early Signs of Viral Immune Response: An
experimental vaccine from Moderna Inc. showed promising early signs that it can create an immune-system response in the body that could help fend off the new corona virus, according to sampling of data from a small, first human trial of the inoculation. A vaccine is considered a crucial step toward lifting social-distancing measures and safely reopening economies, schools and events around the globe.
This is not the first case, there were such 11 companies which are working on developing the vaccines and few of them has also cleared the Phase I trial.
Click on below link to read more about the Top 11 vaccine developments in progress:
https://www.fisdom.com/resources/top-11-vaccine-developments-in-progress/
Mutual Fund Category Winners this week:
Focus on geographical diversification as the post-covid world will throw selective winners in every country.
It could be a technology company in the US to a staples firm in India, a few will survive and grow and money will chase these few. The below performance chart hints towards the same.
Watch this space for our hand-picked strategies on the above themes.
Bottom-line:
While the economy may be in the doldrums, every market throws up winners and this market is no different. Investors first need to cut through the noise, stop focusing on the grim economic indicators and focus on the emerging winners for long term wealth creation.
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