The Signal (weekly highlights)

1. RBI turned net seller of dollars in October to defend rupee

The Reserve Bank emerged as a net seller of dollars both in the spot and forward market for the first time in ten months in October, indicating pressure on the local currency

Although the amounts are still not high, this may slowdown reserves pile up, but also help the central bank manage liquidity as it is on the way to normalise the extra ordinary liquidity support to fight the COVID crisis.

2. MPC minutes: Continued policy support needed

The MPC minutes highlighted supply related disruption. Small moves towards policy normalization may be sufficient now and one can decide to shift to a tightening monetary policy cycle at a point when it is clear that demand revival has acquired resilience and pandemic risks to economic growth have diminished.

Market participants have seen the central bank’s decision to absorb liquidity mainly through variable rate reverse repo (VRRR) auctions from January 1 as a move to tighten policy by stealth. The announcement has resulted in short-term rates inching up even as the reverse repo rate remains unchanged.

3. IT Companies index weighting reached record high of 19%

India’s top IT companies such as TCS, Infosys, Wipro and HCL Technologies, continue to raise their dominance on D-street.

The tech sector outperformed the broader market on Monday as well. Most long term and institutional investors are overweight on the top companies since the sector is expected to be the least vulnerable to macroeconomic risks facing Indian equity such as rupee depreciation and bond yields.

4. Public sector banks successfully rollover AT1 bonds due in FY22

Public sector banks (PSBs), the largest issuers of additional tier-I (AT1) bonds in the last few months, have successfully rolled over their AT1 bonds at a lower or similar coupon compared with the previous issuances. These bonds were due for the exercise of the call option in the current financial year.

The rollover of AT1 bonds by public sector banks at competitive rates compared to their earlier issuances is a positive for the capital ratios and reduces the recapitalization burden of the GoI.

5. PE/VC investments may hit record $70 bn

Private equity and venture capital investment will hit a new high of $70 bn in the calendar year 2021 a projection by Bain & Company suggests.

Out of this, about half money has flowed in just two sectors consumer technology and IT services and Saas (software as a service) which has become an attractive business for investments. Another positive trend here is that the exits have also shown heady growth.