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Photo: Reuters
Photo: Reuters

Markets end higher after central bank maintains ‘accommodative’ stance

  • Sensex ends at 41,306.03, up 0.4% or 163.37 points, while the Nifty at 12,137.95, up 0.40% or 48.80 points
  • The local market also benefits from the gains in indices in Shanghai, Hong Kong and Taiwan

MUMBAI : Indian markets ended marginally higher on Thursday as investors cheered the Reserve Bank of India’s (RBI’s) monetary policy stance to remain accommodative “as long as required" and measures to boost credit flows.

At closing on Thursday, the fourth consecutive session when the Sensex and Nifty gained, the Sensex ended at 41,306.03, up 0.4% or 163.37 points, while the Nifty was at 12,137.95, up 0.40% or 48.80 points.

The local market also benefited from gains in other global peers, where Shanghai Comp, Hong Kong and Taiwan indices gained 1.7%, 2.6% and 1.5% respectively.

Stocks in Asia jumped on Thursday as investors in the region reacted to positive developments on the US-China trade front.

Beijing said on Thursday that it would halve tariffs on hundreds of US imports from on 14 February, according to a statement on the ministry of finance’s website. The ministry, based in Beijing, did not specify what time zone. The adjustment would apply to about $75 billion worth of imports from the US that China slapped with tariffs on 1 September 2019, said a media report.

Analysts said RBI’s decision to give banks cash reserve ratio (CRR) relief on auto loans, retail housing loans, and all micro, small and medium enterprise loans is a big positive for the wider market as liquidity was the main concern for economic growth.

According to Shrikant Chouhan, senior vice-president, Equity Technical Research at Kotak Securities, the central bank’s measures for housing finance companies triggered a positive sentiment in the market.

Others concurred. Pankaj Bobade, head of fundamental Research at Axis Securities Limited, said RBI’s tweaking of maintenance of CRR norms till July 2020 will encourage lending to MSME, retail and housing segments—targeted sectors having a multiplier effect for banks, as they will get exemption in CRR over incremental lending.

Graphics: Paras Jain/Mint
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Graphics: Paras Jain/Mint

“Date of commencement of commercial operations (DCCO) extension for commercial real estate will provide major relief to real estate and thus to lenders having commercial real estate (CRE) exposure. MSME restructuring of the borrower account has been extended by a further one year to 31 March 2021 which will support MSME lenders," he added.

Also, with the introduction of long-term repo operations (LTROs) and the revised liquidity management framework, market rates are expected to move lower and possibly on a durable basis.

“Adequate visibility on liquidity situation over the medium to long-term will be positive for transmission too," said Kotak Institutional Equities.

However, analysts at Motilal Oswal Financial Services Limited said how these measures will lead to better transmission in the real economy remains unclear. “Since the banking system has been in massive surplus for the past eight months or so, further boost to supply (or liquidity) is unlikely to revive economic activity. Worrying though is that some lenders may be tempted to fund sub-prime projects or evergreen loans, thus creating further concerns over the medium term. With inflation expected to remain high in CY20, we do not expect any rate cuts during the next 3-4 meetings," it said.

Shorter tenor bond yield slumped after RBI said it will inject up to 1 trillion of liquidity through one-year and three-year long-term repos at the policy repo rate.

The government one-year bond yield fell 8 basis points to 5.50%, while the three-year bond yield slumped 18 basis points to 5.926% and the five-year bond yield lost 15 bps to 6.344%.

The 10-year bond yield fell 5 basis points to 6.453% from its previous close.

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