Growth, Inflation Outlook Remains Uncertain

A host of news flows and developments continue to impact investor sentiment and contribute to the volatility in the market. The week started on a positive note after FM Nirmala Sitharaman reportedly said that the government remains open to considering and implementing more economic measures if need be. The FM announced a slew of measures related MGNREGS, healthcare and education, businesses, de-criminalisation of the Companies Act, ease of doing business, public sector enterprises, and resources related to state governments. For the period May 18, 2020 to May 22, 2020, FPIs have net sold Indian equities worth Rs 6,920 crore. In the same time period, DIIs have net bought Indian equities worth ~Rs 3,938 crore. For the month of May, so far, FPIs have net bought Indian equities worth Rs 5,718 crore. The corresponding figure for DIIs is a positive Rs 5,931 crore.

The RBI, in its first monetary policy meeting for FY21 reduced the repo rate by 40bps from 4.40 per cent to 4.00 per cent. Consequently, the reverse repo rate stands adjusted from 3.75 per cent to 3.35 per cent, in line with the market expectation. The Bank rate and Marginal Standing Facility (MSF), stands adjusted at 4.25 per cent from earlier 4.65 per cent. The repo rate is at its lowest while the reverse repo rate at 3.35 per cent is just 10bps above from the historic lows seen during the Global Financial Crisis. The Monetary Policy Committee (MPC) continued with its accommodative policy stance and reiterated that it will maintain the same for as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target. The market expects that there is room for further rate action. 

The moratorium on the term loans instalments has been extended by another three months till August 31, 2020. Similarly, the provision for deferment of interest payment on working capital is extended by another 3 months. The RBI also announced a slew of measures to help the economy revive from the COVID-19 impact. RBI extended Rs 1,50,00 crore line of credit to EXIM bank for a period of 90 days from the date from which it was availed with roll over up to 1 year. This will help traders access longer credit lines and relaxation in remittance norms for traders. The maturity of Rs 1,50,00 crore credit line for SIDBI has been extended further by 90 days. The RBI provided some relaxation to state governments by allowing them to use their sinking fund with RBI to meet the repayment obligations. It also allowed banksto increase group exposure to connected counterparties to 30 per cent from earlier 25 per cent. However, this is a one-time provision.Asset classification as NPAs norms continued to be relaxed. 

Growth, as well as, inflation outlook remains uncertain, keeping policymakers, businesses and investors on edge. With expectations of the lockdown being lifted after May 31, all eyes will be on how the economy will limp back to normalcy.