Nifty hits 15,000-mark, bond yields see a spike
Yields hardened over concerns of the government’s hefty borrowing plans
Following the Reserve Bank of India’s monetary policy review on Friday, the bond markets saw yields rising over concerns of the government’s hefty borrowing plans. With RBI governor Shaktikanta Das not providing any explicit guidance on open market operations (OMOs), the yield on the benchmark 10-year government bond climbed to 6.15% during the day, its highest since 28 August.
The 10-year bond yield closed at 6.08 down 1 basis point from its previous close, while the rupee closed at 72.93. The 10-year government-security (G-Sec) yield had seen around 15 bps sell-off after the budget.
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“The bond markets were expecting a status quo on rates and stance, but had built-in high expectations from RBI in announcing specific measures to address concerns around a smooth conduct of government borrowing. While RBI met most expectations, it appears that the lack of specifics around OMOs led to markets immediate reaction of pushing up yields,” said Amandeep Chopra, head, fixed income, UTI AMC.
Chopra said the 10-year yields may consolidate at a higher band than the October-January period, and remain range-bound, while looking for clues from specific RBI action on G-Sec auctions.
However, the central bank’s monetary policy review had little effect on the equity market, with benchmark indices witnessing record highs, riding on the budget announcements. In early trade, the Sensex hit the 51,000-mark, while the Nifty touched 15,000 for the first time ever. Both indices ended flat on Friday, but have risen over 9% since Monday. The Sensex was up 117.34 points or 0.23% closing at 50,731.63. The Nifty was up 28.60 points or 0.19% before ending the day at 14,924.25.
“Overall, RBI is prioritizing growth at this juncture, complementing the fiscal push seen in the Union budget,” said analysts from Edelweiss Securities.
RBI has allayed market fears of quick normalization and mentioned that the liquidity stance will remain accommodative in consonance with the monetary policy stance, they said. Thus, the street remains committed to support growth in unison with fiscal policy. “These augurs well for growth prospects,” Edelweiss said.
The MPC voted unanimously to keep policy rates unchanged and maintained its erstwhile accommodative stance “at least during the current financial year and into the next financial year”.
“We believe the tug-of-war between the RBI’s motivation to support the bond market and fundamentals is set to intensify. In our base case, RBI leaves the policy repo rate unchanged through 2021,” said Nomura. It also expects the policy stance to shift to ‘neutral’ from ‘accommodative’ in Q3, the normalization of the policy corridor to begin in Q4, and 50 bps repo rate hikes in the first half of 2022.
India Inc. cheered the RBI stance and expected growth measures to spur consumption. “While keeping repo rates unchanged gives an indication that cost of funds would remain low, giving a direction that cash reserve ratio (CRR) would rise from 3% to 4% in phases is a superb move,” said Vikash Agarwal, president, Indian Chamber of Commerce.
According to Uday Shankar, president, Ficci, the incentivization of new credit flow to MSME borrowers is a big positive and indicates the targeted approach towards meeting the needs of the most stressed. “MSMEs have been reeling under tremendous pressure and this measure should further nudge the banks to lend to these enterprises,” he said.
(Kalpana Pathak and Swaraj Singh Dhanjal contributed to the story)
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