Thursday’s top brokerage calls: RBI policy, steel stocks and more

Stocks to buy
Morgan Stanley on RBI Policy: Managing liquidity and commitment to buy G-Sec indicates a more dovish stance, said the brokerage. It feels that as growth conditions normalise, RBI should take steps to normalise the policy.
Nomura on RBI Policy: The brokerage feels RBI’s policy decision is less dovish than what meets the eye. It added that managing the yield curve may be challenging if long-term inflation expectations rise.
Credit Suisse on Steel: Indian steel pricing rose $50/t this week in the trader’s market, said the brokerage, adding that the prices are likely to be elevated on-demand recovery, shortage and cost-push. It likes Tata Steel and JSPL in the space.
Citi on Steel: The brokerage raises FY22 EBITDA estimate by 12-20 percent for JSW Steel, JSPL & SAIL.
Macquarie on IT Sector: The brokerage sees strong demand tailwinds for Indian IT aided by cloud and digital transformation. Top large-cap picks in the IT space for Macquarie are Infosys and HCL Tech.
CLSA on IT Sector: As per the brokerage, the strength of deal activity is in line with recent commentaries by Indian IT companies.
CLSA on Bharti Airtel: The brokerage maintains a ‘buy’ call on the stock with a target at Rs 730 per share.

Here are key stocks that moved the most on April 7

Panacea Biotec, stocks of panacea biotec, Sputnik V, stock market, NSE, BSE

Indian shares ended around a percent higher on Wednesday after the Reserve Bank of India (RBI) held a repo rate, as widely expected, to support the economy against the backdrop of the second surge in COVID-19 cases.

The Reserve Bank of India (RBI) stuck to its accommodative monetary policy stance amid concerns that rising infections could derail the country’s nascent economic recovery.

The Sensex ended 460 points higher at 49,662 while the Nifty rose 135 points to settle at 14,819. The broader markets also rose in trade with the midcap and smallcap indices up 1.3 percent and 1.7 percent, respectively.

On the Nifty50 index, JSW Steel, Wipro, SBI Life, SBI and IndusInd Bank were the top gainers while Adani Ports, Tata Consumer, UPL, Titan and NTPC led the losses.

Here are the key stocks that moved today:

Barbeque Nation: Shares of Barbeque Nation Hospitality rebounded after making a weak market debut and were locked in the upper circuit of 20 percent at Rs 590.40 on the BSE in Wednesday’s session. The stock of Barbeque Nation Hospitality, which owns and operates the popular chain of Barbeque Nation Restaurants, had opened at Rs 492, 1.6 percent lower against its issue price of Rs 500 per share on the BSE.

Rate Sensitive stocks: Rate sensitive stocks continued trading in the green as RBI’s monetary policy committee (MPC) held the repo rate at 4 percent in the April policy and retained its ‘accommodative’ stance which could continue for as long as necessary to revive growth. Nifty Bank was up 1.5 percent, Nifty Auto rose 1.6 percent and Nifty Realty added 0.9 percent after the policy announcement.

Reliance Industries: RIL share price rose 1 percent after the company’s subsidiary Reliance Jio signed an agreement with Bharti Airtel for acquiring the right to use spectrum in some parts of the country. Reliance Jio Infocomm has entered into a definitive agreement with Bharti Airtel for the acquisition of the right to use spectrum in the 800MHz band in Andhra Pradesh, Delhi and Mumbai circles through spectrum trading, RIL said in a BSE filing.

Rossari Biotech: Shares of Rossari Biotech advanced 3 percent, its highest level since listing on the bourses on July 23 last year. Thus far in the month of April, the specialty chemicals company’s stock has soared 16 percent in the four trading days, after the company announced full commissioning of its Greenfield manufacturing facility at Dahej, Gujarat.

GSAP is not a one off measure, there will be more going ahead: RBI Guv

Economy has exhibited stronger-than-expected rebound, RBI Governor

Reserve Bank of India (RBI) governor Shaktikanta Das on Wednesday said that the G-Sec acquisition program (GSAP) is in addition to normal instruments in their toolkit for liquidity management.

“It is not a one-off measure. There will be more going ahead,” he said while addressing a press conference.

“Our signals, actions and communication must be read together. G-SAP is different from the usual OMO calendar. We have conducted total OMOs of Rs 3.13 lakh crore in FY21,” he added.

RBI has decided to put in place a secondary market Government Security Acquisition Programme (G-SAP) 1.0 for orderly evolution of the yield curve in FY22.

In the first quarter (Q1), the central bank will be conducting G-SAP aggregating Rs 1 lakh crore, where the first purchase of Rs 25,000 crore will be done on April 15, Das said.

“RBI will commit to upfront buying of G-secs. It will ensure financial stability and G-sec stability from global uncertainty,” Das earlier said while making policy announcements.

According to him, RBI will continue to deploy its regular operations under the LAF, longer-term repo/ reverse repo auctions, forex operations and open market operations, including special OMOs, to ensure liquidity conditions evolve in consonance with the stance of monetary policy and financial conditions are supportive for all stakeholders.

LAF is Liquidity Adjustment Facility while OMO refers to Open Market Operations.

The central bank also announced that it will conduct 14-day Variable Rate Reverse Repo (VRRR) auctions of longer maturity as indicated in the Revised Liquidity Management Framework announced on February 6, 2020.

The amount and tenor of these auctions will be decided based on the evolving liquidity and financial conditions, RBI said.

The Monetary Policy Committee (MPC) of the Reserve Bank, meanwhile, held the repo rate at 4 percent in the April policy and retained its accommodative stance for as long as necessary amid rising inflation and elevated inflation.

RBI hikes payments bank deposit limit to Rs 2 lakh

The Reserve Bank of India (RBI) on Wednesday hiked the maximum end-of-day balance for payment banks to Rs 2 lakh, from Rs 1 lakh.

“With a view to furthering the financial inclusion and to expand the ability of payments bank to cater to the growing needs of their customers, the current limit on maximum end of day balance of Rs 1 lakh is being increased to Rs 2 lakh per customer with immediate effect,” RBI governor Shaktikanta Das said.

Earlier, payments banks had urged the RBI to review the customer’s deposit limit.

In October 2018, the central bank had also issued guidelines for the adoption of inter-operability on a voluntary basis for full KYC Prepaid Payment Instruments (PPIs).

“As migration toward inter-operability has not been significant, it is now proposed to make inter-operability mandatory for full KYC PPIs and for all payment acceptance infrastructure. To incentivize the same, RBI we will increase the outstanding limit of such PPIs to Rs 2 lakh from the Rs 1 lakh limit earlier,” Das said.

“A separate circular with details regarding this will be issued soon,” he added.

Payment banks are savings account that can offer deposit services but cannot offer loans and advances to the customers.

Paytm Payments Bank, Airtel Payments Bank, India Post Payments Bank are some of the payment banks.

Meanwhile, the central bank kept interest rates steady at record lows on Wednesday, as widely expected, sticking to its accommodative monetary policy amid concerns that rising COVID19 infections could derail the country’s nascent economic recovery.

Rate sensitive stocks edge higher after RBI policy announcement; banking, auto and realty indices up over 1% each

market_stocks

Rate sensitive stocks continued trading in the green as RBI’s monetary policy committee (MPC) held the repo rate at 4 percent in the April policy and retained its ‘accommodative’ stance which could continue for as long as necessary to revive growth.

Nifty Bank, Nifty Auto and Nifty Realty surged over 1 percent each after the policy announcement.

The central bank retained India’s FY22 real GDP growth projection at 10.5 percent. The MPC had projected this during the previous policy announcement.

RBI expects CPI inflation to be at 5.2 percent in Q1FY22, 5.2 percent in Q2 FY22, 4.4 percent in Q3 FY22, and 5.1 percent in Q4 FY22.

“The monetary policy announcement is on expected lines without changes in policy rates and stance. However, reading between the lines, one can conclude that the stance is more dovish than expected with the governor reinforcing the central bank’s commitment “to remain accommodative to support & nurture the recovery as long as necessary,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The Nifty Bank index rose 1 percent with Bandhan Bank, IDFC First Bank, SBI, PNB, IndusInd Bank up between 1.5 percent and 3 percent after the announcement.

Meanwhile, the auto index advanced 1.3 percent. Among stocks, Ashok Leyland rose 3.5 percent while Motherson Sumi, Maruti, Hero Moto, Bosch and Eicher Motors were up over 1.5 percent each.

Among the realty names, Indiabulls Real Estate, Sobha, DLF, Brigade, and Godrej Properties rose between 1 and 3.5 percent each.

The bank further announced to provide additional liquidity support of Rs 50,000 crore for fresh lending in 2021 to financial institutions.

 

Catch updates from the RBI Policy meet here

RBI to buy Rs 1 lakh crore of G-Sec under GSAP in Q1

Rupee settles flat at 73.59 against US dollar

The Reserve Bank of India (RBI) governor Shaktikanta Das on Wednesday said that they have decided to put in place a secondary market Government Security Acquisition Programme (G-SAP) 1.0 for orderly evolution of the yield curve in FY22.

In the first quarter (Q1), the central bank will be conducting G-SAP aggregating Rs 1 lakh crore, where the first purchase of Rs 25,000 crore will be done on April 15, Das said.

“RBI will commit to upfront buying of G-secs. It will ensure financial stability and G-sec stability from global uncertainty,” he added while making policy announcements.

“Our objective is to eschew volatility in the G-sec market in view of its central role in the pricing of other financial market instruments across the term structure and issuers, both in the public and private sectors,” RBI governor Das said.

According to Siddhartha Sanyal, Chief Economist and Head – Research, Bandhan Bank, the G-SAP will almost serve the purpose of an OMO calendar, which had been on the bond market’s wish list for a long time.

“While we don’t think that the central bank is “targeting” any level for bond yields, they clearly recognize the need for anchoring interest rates during the current nascent stage of growth recovery and remain forthcoming in conveying that to the markets,” Sanyal said.

“This announcement could lead to much lower sovereign risk premia ahead amid elevated borrowing calendar this year. We reckon the RBI will continue to strive to fix artificially skewed yield curves and maintain its preference for curve flattening,” added Madhavi Arora, Lead Economist, Emkay Global Financial Services.

Rohit Poddar, Managing Director, Poddar Housing and Development LTD
said that the equity markets will cheer with the announcement on RBI’s Government Securities Acquisition Programme.

“This will ensure government borrowing at a low cost and be able to address pandemic-related adversities from both economic and healthcare aspects,” he opined.

Meanwhile, the central bank expectedly left interest rates unchanged and maintained an accommodative stance as the economy faces a renewed threat to growth due to the resurgence of coronavirus cases. The central bank kept the benchmark repurchase rate unchanged at 4 percent and maintained an accommodative policy stance to support growth.

RBI Monetary Policy Highlights: MPC holds repo rate at 4%, retains accomodative stance

RBI Monetary Policy Highlights: The Monetary Policy Committee (MPC) of the Reserve Bank held the repo rate at 4 percent in the April policy and retained its accommodative stance for as long as necessary amid rising inflation and elevated inflation. A CNBC-TV18 poll among ten economists showed all expected the MPC to hold fire in the April policy, keep the repo rate unchanged at 4 percent.

View: RBI will adopt ‘wait and watch’ approach before raising repo rate

The Reserve bank of India in its first bi-monthly monetary policy in the financial year 2021-22 is expected to keep interest rates (repo rate) on hold at 4 percent on April 7, 2021. The probability of the “Rate Unchanged” has significantly increased since the last monetary policy on Feb 5, 2021. The notable point here is India’s COVID cases.

On Feb 5, 2021, the RBI in its monetary policy had kept interest rates unchanged but under the Cash Reserve Ratio normalization process, CRR is hiked by 50 bps to 3.5 percent effective March 27 and 4 percent from May 22 this year. At that time COVID cases in India were around the bottom of 10000/day.

While, exactly two months after that bottom, currently cases are nearly All-Time-High of more than 1,00,000/day. The rise in COVID cases (on the entrance of new variant) with normal vaccine rollout will pressurize RBI to maintain the status quo on policy rates and maintain an accommodative policy stance.

Factors in favor of rate hike Factors in favor of unchanged
US stronger growth in peers increases bets for early Taper 1 India’s COVID- second wave warrant wait and watch
Pressure from other Emerging market Central bank 2 Higher rates will not favor center’s budgeted plan
3 RBI’s renewal of sticky inflation band doesn’t sight future higher inflation
Probability of occurring Rate hike is less than 5% Probability of occurring Rate hold is greater than 95%

The rate hike factors are likely to be dominated by domestic factors. Each factor is explained as below:

Factors in favor of rate hike

US stronger growth in peers increases bets for early Taper

The risk-on sentiment led by Joe Biden’s “once in a century” infrastructure plan of $2 trillion could attract investment flows back to different US sectors and could help to push growth higher. This has started discounting into future fed’s activity, justifying from recent spike in the US benchmark bond yield. The 2013- taper followed by slow rate hike statement fell short to the market as traders were moving ahead of the Fed for more rate hike. The same is happening right now, Fed is lagging the participant’s foresight for taper & rate hike. The spike in yield on rising inflation and rate hike expectation will pressurize on RBI to turn hawkish.

Pressure from other Emerging market Central bank

The Rupee was an outlier with stronger performance in its peer group on stable economic outlook , rising carry trade and controllable inflation forecast. But recent spike in COVID, shoot up in raw material import prices, higher freight & transport cost, unavailability of container on ports is forcing to recalibrate pricing methodology and wholesale price index is coming in limelight rather than consumer price index. The fall in EM currency on back of rising inflation expectation is triggering central banks to turn hawkish sooner than later.

Factors in favor of unchanged

India’s COVID- second wave warrant wait and watch

The Corona cases with mutant variant, which is less impactful from ongoing vaccine is creating another fear of stricter lockdown in India’s richest city-Mumbai. Overall, Maharashtra is contributing almost 50 percent of corona cases to India’s more than 1 lac cases per day. From growth and financial market point of view, this is not a good sign and market will expect higher liquidity and credit facilities to combat issues of businesses and expenditure. And hence, lower rates will help to survive during this kind of situations.

Higher rates will not favor center’s budgeted plan

The center is planning to borrow INR 12 lac crore in financial year 2021-22 with fiscal deficit target of 9.5 percent of GDP; which is 2.5 times higher than normal levels. This has to be well supported by the central banks. Out of 12 lac crore, borrowing calendar suggests 7.2 lacs worth borrowing (more than 60 percent) will be done by September. And hence, RBI has to keep interest rates at “reasonable” levels to borrow at cheapest levels since 2004-2005. The borrowing calendar suggests issuance is tilted towards long-end to give importance to ‘orderly evolution of yield curve’.

RBI’s renewal of sticky inflation band doesn’t sight future higher inflation

Recently, RBI has supported the government’s inflation target of 4 percent with deviation of +/- 2 percent by renewing flexible inflation targeting regime (FIT) for another five years through 2026, erasing market speculation that government will push to shift focus to economic growth. However, renewal at the steady levels doesn’t seem promising at the current situation and if RBI fails to mitigate inflation target for three consecutive quarters, it has to justify to the government for it. The chances of hitting upper band is more likely on account of rise in crudeoil prices, ignorance of center’s to cut tariff and duty and due to rising food prices. And hence, in this case if underestimating inflation could pressurize on equity market and capital flows. And in extreme case, to curb outflow RBI has to hike rates.

Conclusion:

Overall, the RBI is expected to keep interest rates unchanged with no surprise in stance. But they could come up with new easing financial market measures to cheer up market participants for time being. On communication front, RBI has to clearly address their coordination with the government on borrowing front in the current environment. It is expected that RBI could revise their inflation forecast higher a bit and growth forecast a lower. And in this case, market could start reacting adversely and panic selling could emerge. The impact of selling on domestic currency Rupee will not remain muted and could experience unwinding of carry trade in knee-jerk reaction.

Technically, the recent up move in last two-trading session of the last financial year was notable as USDINR pair jumped from 72.50 to 73.50 levels. The ongoing retracement is likely to remain limited up to 72.90-73.10 zone and expected to resume its up move towards 73.80-74.00 levels in the near term.

Amit Pabari is managing director of CR Forex Advisors. The views expressed are personal.

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RBI Policy: Veteran bankers say CRR on expected lines as RBI sticks to calendar

The Reserve Bank of India (RBI) announced its monetary policy on Friday after a three-day policy meet. The Central Bank held the repo rate at 4 percent and kept the stance ‘accommodative’, in the first policy after Budget 2021.

Neeraj Gambhir, President, Head-Treasury and Markets of Axis Bank, SS Mallikarjuna Rao, MD and CEO of Punjab National Bank and Ashwani Bhatia, MD of State Bank of India (SBI) shared their readings and outlook going forward.

SBI’s MD said, “RBI won’t change the policy just because the market is expecting it. So it is sticking to its calendar. I don’t see anything wrong in it. I guess the market was expecting that it will be pushed forward by six months or a year. Once RBI gives guidance, it sticks to it.”

“The increase in cash reserve ratio (CRR) is expected. Originally when it was announced, it was applicable only to March now they have given further window for reduction over a period of time. So it is an advantage policy consistency for us. More statutory liquidity ratio (SLR) related announcement and CRR related announcement is in good line so that we can plan accordingly for adhering to the lower levels over a period of time,” said Mallikarjuna Rao.

“Even TLTRO on-tap for covering non-banking financial companies (NBFCs) is a good measure. So it will be an opportunity for lending towards them to tap the market,” Rao added.

“The market is somewhat nervous about how this large borrowing program is going to get absorbed and what kind of support from RBI will be required going forward and whether that support will be forthcoming. That is what is getting reflected in the price,” said Gambhir.

For more, watch the video…

RBI extends marginal standing facility relaxation for 6 months

Shaktikanta Das

The Reserve Bank of India (RBI), in its February monetary policy, extended the relaxation under the marginal standing facility (MSF) by six more months.

The RBI Governor Shaktikanta Das announced said that the stance of liquidity management continues to be accommodative and in consonance with the monetary policy.

On March 27, 2020 banks were allowed to avail of funds under the marginal standing facility (MSF) by dipping into the Statutory Liquidity Ratio (SLR) up to an additional one percent of net demand and time liabilities (NDTL), i.e., cumulatively up to 3 percent of NDTL.

This facility, which was extended in phases up to March 31, 2021, will now be available for a further period of another six months, i.e. up to September 30, 2021 to provide comfort to banks on their liquidity requirements.

This dispensation provides increased access to funds to the extent of Rs 1.53 lakh crore.

Meanwhile, the RBI has ket the repo rates unchanged at 4 percent. The central has also projected India’s GDP growth rate at 10.5 percent for the fiscal year 2021-22.

Central bank’s projection is lower than that of the Economic Survey that projected India to grow at a rate of 11 percent in the coming fiscal.

The RBI projected the retail inflation for the fourth quarter of fiscal 2021 at 5.2 percent, down from 5.8 percent forecast earlier.

Read here: RBI projects CPI inflation at 5.2% for Q4FY21

Announcing its February Monetary Policy, RBI Governor Shaktikanta Das on Friday said that the CPI inflation in the first half of the financial year 2022  is projected at 5.2 percent to 5 percent as against 5.2-4.6 percent forecast earlier.

Catch live updates on RBI policy here.