Home >Markets >Stock Markets >RBI’s liquidity measures not enough to enthuse markets

MUMBAI : Even as the Reserve Bank of India (RBI) has announced a slew of measures to provide additional liquidity for the economy to combat challenges posed by the second wave, markets did not seem enthused. The markets remained in a narrow range with the benchmark indices gaining less than 1% in intraday trade. At 2.36 pm, the BSE Sensex was at 48,506.69, up +253.18 points or 0.52%. The Nifty was at 14,578.35, up 81.85 points or 0.56%.

As the economy is struggling with most part of the country under localized lockdowns due to second wave of covid, markets were expecting a blanket loan moratorium, said analysts. Though a loan moratorium was not announced, restructuring of loans, however, could bring some relief to the borrowers.

Mohit Nigam, head-portfolio management services, Hem Securities, said on the RBI governor's speech, “While the RBI governor has expressed concerns about the prevailing covid situation and mixed high frequency indicators in April, the measures announced today might not give a major boost to the equity markets but are likely to provide downside support and will act as a confidence booster."

The RBI did not announce a blanket moratorium like last year but has proposed some important measures to deal with fallout of covid situation. It has set on tap liquidity of Rs50,000 crore at repo rate to strengthen healthcare infrastructure for period of three years and it would qualify as priority sector lending for banks.

The RBI will provide covid-related resolution framework 2.0 flexibility to banks to recast loans to small borrowers, MSME and individual with up to Rs25 crore dues even if it was classified as standard asset as on March. Besides, the central bank will also provide liquidity to small finance banks through repo operations.

According to Radhika Rao, economist at DBS Group Research, while an outright moratorium was not in the mix, a special liquidity window is being made available to lend to the healthcare and related sectors, and financial institutions can revisit terms of the previous recast accounts as well as aid newly affected qualified businesses with additional relief.

“The next tranche of Rs35,000 crore of bond purchases under the G-SAP 1.0 will be conducted in a fortnight, which will help to push risk-free yields down. Encouragingly, the central bank assured that they remain on standby to provide further unconventional, novel, and fresh measures if the evolving pandemic situation warrants additional support. They continue to watch developments closely to gauge the impact on growth, while more caution was expressed on inflation in light of the strong commodity price upcycle and likely pressure on margins," she added.

Kiran Chonkar, partner-resolution advisory, BDO India, said the steps announced by the RBI Governor towards restructuring of loans of small borrowers and MSMEs are timely and prudent. “However, the pandemic has affected the industry across segments. A roll-out of broader relief measures applicable to mid-corporate and large borrowers, and towards sectors heavily impacted by the pandemic, such as hospitality, would have been welcome," he added.

Analysts also interpreted that an absence of a blanket moratorium like last year when there was a nationwide lockdown may also indicate that the economy is not in a bad shape. “The fact that there is no moratorium announcement will be seen by the markets as positive since the message is that the situation is not bad as to warrant another moratorium", said V.K. Vijayakumar, chief investment strategist, Geojit Financial Services.

Healthcare and banking related stocks moved higher, with BSE Healthcare index gaining nearly 3% while BSE Bankex was up over 1%.

“The measures would help enhance credit to medical/health infrastructure and provide flexibility to the banking system to recast loans to give case specific relief to small borrowers, MSMEs and individual borrowers. Overall, the measures are focused on easing liquidity issues for lenders, soften credit cost and boost credit cycle," said Gaurav Dua, head, capital market strategy, Sharekhan by BNP Paribas.

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