Tag: liquidity

RBI’s accommodative policy lasted long, expect response to inflation: Geosphere Capital

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Geosphere Capital Management is concerned about the inflationary situation in India and therefore, expects a response to inflation, Arvind Sanger, managing partner, told CNBC-TV18.

“The accommodative policy of the Reserve Bank of India (RBI) has gone on for a considerably long time. It was needed during the COVID period, but at this point, it’s not a COVID response we need, we need an inflation response. Therefore, we are looking at equities and sectors where we have a little more inflation protection,” Sanger said.

“As the economy improves, you want to manage inflation expectation from getting out of control. The fundamentals of economic growth in India are manifold, but needing an overly accommodative RBI is not an essential requirement for the recovery cycle that is coming. RBI needs to be more balanced as we go forward because the economy can stand on its own feet without needing RBI to provide easy liquidity,” he said.

Also Read: Inflation in India likely to ease only gradually: RBI Deputy Governor

On the Indian equity market, Sanger said that the market is at all-time relative premiums which indicate valuations could come off.

Also Read: What to expect from RBI’s Oct 8 policy? Experts gauge challenges for MPC

“The fact that the market is close to all-time relative valuation premiums to its own history as well as to other emerging markets suggests that the valuation side of the bubble, if I could call it that, could come off, not taking away from the long-term market strength based on earnings, but from short-term valuations being ahead of fundamental issues,” he said.

For the entire interview, watch the video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Midcap IT stocks warrant caution; positive on specialty chemicals space: Envision Capital

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Nilesh Shah, MD & CEO of Envision Capital, on Wednesday, said that the midcap IT stocks warrant caution.

“Midcap IT segment does warrant caution at these kinds of levels. There has been a massive rerating and most of these midcap stocks in the technology service space, are now trading at a huge premium to some of the bellwether, the larger IT stocks. So, one has to be very careful of adding fresh positions or fresh names,” Shah said, in an interview to CNBC-TV18.

Also Read: Amid fintech offerings in lending space, are merchants’ savings taking a hit?

According to him, the demand environment for tech companies is very strong. “However, the parameter to watch out for is margins. If you look at it, over the last four quarters or so, margins have been at record highs and it’s unlikely that margins are going to sustain at these kinds of levels. And so, if a bit of slippage on margins happen, you could actually see a sharp correction in the stock prices of that, some kind of alignment of PE multiples where some of these stocks fall in line with the valuations of some of the largecap peers. So, this is a time to turn a little cautious on the technology services sector,” he said.

Also Read: Morgan Stanley selective on midcap IT; overweight on Mphasis, Mindtree; here’s why

He further said that sectors like specialty chemicals continue to be strong. However, he does not see alpha generation in universal banks. “I don’t see massive scope for alpha generation in the universal banks because they are most vulnerable and with the kind of margins and spreads that they have enjoyed is in a way, now getting threatened with fintech, specialized lenders coming in etc., with abundant liquidity,” Shah said.

For more, watch the video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Valuations getting stretched, need to be selective; financials look good, says market expert Punita Sinha

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian equities scaled new peaks, with the Nifty closing above 17,100 — this is the Nifty’s fastest 1,000 points gain. The BSE Sensex also surged to a lifetime high, above 57,500. The two indices gained over a percent each today, with August turning out to be the best month for the benchmarks in the last nine months.

The last time markets saw a 10 percent correction was in May 2020 and since then markets have risen nearly 80 percent without a meaningful correction.

CNBC-TV18 spoke with Punita Kumar Sinha, Managing Partner at Pacific Paradigm Advisors, to discuss more about the markets and the way ahead. She is also the Chairperson of INCRED.

Also Read: Barbeque Nation in focus, here’s why

Sinha is of the belief that it is the global liquidity that has really been very critical in driving the markets up because if one looked at the fundamentals, the economies were all seeing downgrades – on GDP, on earnings, there were supply-side issues, and demand was weak. So there were a lot of concerns, but global liquidity really did inflate a lot of asset classes and equity markets across the world rose.

According to her, the situation we are in now is that while the fundamentals are improving, growth has really improved and picked up, valuations are reaching quite stretched level in some select areas and liquidity while is strong, there may be some debate on whether it needs to be tapered.

She said, “we are at an inflection point.” “One, the Fed discussions are going to be very important because we do know that emerging markets do react to any kind of tapering, that might happen there. But at the moment, it doesn’t look like there will be a very strong tapering, but maybe some discussion starting to think about it. The reason India has rallied in August so much is partly because earlier this year, while India was going through a really bad COVID wave, China and some of the other Asian countries, also US and other markets were actually doing quite well.”

“Then China regulatory authorities came down quite strong on the tech sector and growth in China is showing to be a little bit of a concern. Also, the supply-side issues that are coming from China’s sort of shutting down in certain areas in terms of exports etc and trade is beginning to make investors a little bit more concerned about China. So, some of that liquidity that was going into China has benefited India,” she added.

“Two, we also had a lot of new IPOs coming in and while the China tech sector has been getting negative, press and negative regulatory overhang, the Indian technology IPOs, consumer internet IPOs that are coming up are gaining some interest amongst investors, because the regulatory environment here is relatively benign. So, that is also helped investors look at India,” said Sinha.

Also Read: Nifty50 makes its fastest 1,000-point run ever. Here’s how it has gained pace over years

She said, “Growth in India is looking better than some of the other countries. India growth looks like it will be picking up. Growth in some of the other countries – US growth has been very strong, employment has been very strong. But part of the reason has also been the stimulus package that had been given but now as the stimulus wanes, the question is what does that do to grow? Does growth remain as strong? Or does it slowly start to slow down? There is also increase in Delta variant infections going on there as well.”

“At the moment, we have different cycles, India’s in more of an upcycle and some of the other countries have already had their strong days. So, relatively that is why I think one of the reasons India has seen liquidity come in,” she explained.

Also Read: BSE-listed companies’ market value tops Rs 250 lakh crore for first time

On valuations, she said the rally has led to some valuations getting stretched. So one needs to be selective. Regardless of what happens in India, global liquidity and any reduction of global growth or any reduction in global liquidity will also impact India in some fashion.

When asked whether in the financial space valuations looked reasonable or stretched and would she bet on this space, she said, financials are looking relatively less stretched as compared to other sectors. So financials, are still looking better than some of the other sector in terms of valuations.

For the entire show, watch the accompanying video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI maintains FY22 GDP growth target at 9.5%; experts weigh in

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) on Friday kept the GDP growth forecast for FY22 unchanged at 9.5 percent. RBI Governor Shaktikanta Das said on Friday, while announcing the third bi-monthly monetary policy review, said that economic recovery remains uneven across sectors and needs to be supported by all policymakers. H added that said RBI remains in “whatever it takes” mode, with a readiness to deploy all its policy levers – monetary, prudential or regulatory.

Soumya Kanti Ghosh, Group Chief Economic Advisor of State Bank of India said, “The RBI has actually upped the inflation forecast and lowered the growth forecast in the Q3 and Q4. At the same point of time, the central bank is saying that growth is gaining traction in the short term. So basically, if we try to combine the two statements – that growth in the gain in traction, which the economy is showing currently may actually fizzle out over a point of time if broad-based policy actions are and not taken, this is the point number one.”

Ananth Narayan, Professor at SPJIMR said, “Dissent was expected at some stage given that inflation is about the upper tolerance limit of the MPC, dissent is expected. On the higher inflation expectations, I think it is actually a positive given particularly that Q2 and Q3 inflation forecasts are being put on the higher side that gives a lot of wiggle room for the MPC even if you see higher prints on inflation, to stay the course on staying accommodative.”

Neeraj Gambhir, President, Head Treasury & Markets at Axis Bank said, “While the policy was pretty much on the expected lines in terms of its clarity and the language and the actions taken, I think what the Reserve Bank has allowed to do outside the policy is also equally important.”

“As far as loan pricing is concerned, I think the fact that there is abundant amount of liquidity in the system and the short term rates continue to be extremely low. The overnight rate is very close to the reverse repo rate, and that is determining the entire shorter end of the yield curve. So, effectively the entire pricing of short term loans, whether it is CPs, loans, or other instruments is all driven by the reverse repo rate right now effectively means that there isn’t going to be a lot of change as far as the short term rates is concerned and the loan pricing is concerned.”

SS Mallikarjuna Rao, MD & CEO of PNB said, “I do agree with Mr. Gambhir what he said about interest rates, there are two dimensions one dimension is RBI by continuing with the repo rate, and also extending the TLTRO have sent the message with respect to continuation of liquidity currently available in the market to continue for some more time. So it clearly indicates that the expectation of RBI that the growth appearance to them, visibility to them still requires some more time.”

For full interview, watch accompanying video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI to conduct two GSAP auctions worth Rs 25,000 cr on August 12, August 26

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) will conduct two GSAP auctions worth Rs 25,000 crore on August 12 and August 26 to enable an orderly evolution of the yield curve, said RBI Governor Shaktikanta Das on Friday.

“Our recent GSAP auctions that have focussed on securities across the maturity spectrum are intended to ensure that all segments of the yield curve remain liquid,” Das said while announcing the third bi-monthly monetary policy.

The Reserve Bank’s secondary market G-sec acquisition program (G-SAP) has been successful in anchoring yield expectations while eliciting a keen response from market participants, he noted.

”We propose to conduct two more auctions of Rs 25,000 crore each on August 12 and August 26, 2021, under G-SAP 2.0. We will continue to undertake these auctions and other operations like open market operations (OMOs) and operation twist (OT), among others, and calibrate them in line with the evolving macroeconomic and financial conditions,” he said.

He further said that RBI will conduct fortnightly variable rate reverse repo (VRRR) auctions of Rs 2.5 trillion, Rs 3 trillion, Rs 3.5 trillion and Rs 4 trillion over the coming weeks.

RBI has been conducting 14-VRRR auctions as the main liquidity operations. This was reintroduced on 15 January 2021.

“We are increasing the quantum put under auction under VRRR window in response to market appetite,” Das said.

In parallel, access to the fixed-rate overnight reverse repo has been kept open, he said, adding markets have adapted and even welcomed the VRRR because of the higher remuneration it offers relative to the fixed-rate overnight reverse repo.

To provide comfort to banks on their liquidity requirements, including meeting their Liquidity Coverage Ratio (LCR) requirement, RBI further said they will extend the on-tap Targeted Long-Term Repo Operations (TLTRO) scheme till December 31, 2021.

The Reserve Bank of India’s monetary policy committee, meanwhile, kept interest rates steady at record lows on Friday, as widely predicted.

Catch RBI policy related full coverage here

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

BOTTOMLINE: Look before you dive, the liquidity tide is ebbing

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Money is cheap today. In fact, it’s worth almost nothing, if you consider the US Federal Reserve Reverse Repo rate of 0.05 percent (hiked from 0 percent in mid-June). And despite this, we recently saw nearly $1 trillion being parked with the US central bank through its reverse repo window. This suggests, that there’s more money out there than there’s a use for.

In fact, the amounts being parked in the US Federal Reserve reverse repo window has only been climbing, and analysts believe cash will only swell from here ahead of the new debt ceiling being set later in the month. Interestingly, this money is not now flowing into areas that may offer a higher return. Are bankers sensing something? Does this mean that the Federal Reserve’s bond-buying programme has run its course as an effective tool?

Let’s look at some recent central bank actions to get a sense of the turning tide.

THE TURNING TIDE

In mid-June, Brazil’s central bank hiked its benchmark selic rate by 75 basis points to 4.25 percent and indicated more, quicker rate hikes ahead.

The central bank’s statement was unequivocal on this: “For the next meeting, the Committee foresees the continuation of the monetary normalization process with another adjustment of the same magnitude”. Russia too hiked rates in the second week of June by 50 basis points to 5.5 percent and suggested more hikes were on the cards. China had already started reining in its credit impulse some time ago which is starting to have an impact. Of the BRIC block, that leaves only India that’s still staying easy. But that too is likely to change with most economists expecting a change in the accommodative stance before the end of the fiscal if inflation stays its course.

Also read: Focus of RBI turning to equitable distribution of liquidity, says Shaktikanta Das

That’s not all, economists expect the UK to start hiking rates from the second quarter of next year, as opposed to their earlier estimate of a kick-off only in 2023. Even the US Federal Reserve has indicated there could be two rate hikes by 2023 (against none till 2024 earlier), and tapering is already being discussed, which (given recent comments from some of its members) may happen much sooner. That’s a significant shift in the sands.

In fact, the former PIMCO chief, Mohammed El Erian, points to important comments by Andy Haldane, Bank of England’s outgoing Chief Economist, that are most relevant for the Federal Reserve to take note of. Haldane suggests that inflation will rise leading to a “Minsky Moment for monetary policy, a taper tantrum without the taper. This would leave monetary policy needing to play catch-up to re-anchor inflation expectations through materially larger and/or faster interest rate rises than are currently expected”. And such a move is bound to hurt markets.

THE LIQUIDITY BULL-RUN

The liquidity infusion as a result of actions of global central banks has fuelled an unprecedented rally in assets. And the risks of keeping this easing going are rising swiftly, given how large the infusion has been in relation to the size of the economies being supported. The Federal Reserve’s balance sheet has doubled to $8.1 trillion from near $4 trillion in January last year and today equals 36 percent of US GDP. Europe is worse with the ECB balance sheet at near 80 percent of GDP. This surge of liquidity has had the expected consequences, with money flow into assets inflating values—at a time when most productive activity is at a low ebb due to the pandemic. And this has continued without let-up in 2021, as can be seen from the charts below.

As Haldane says, “Central bank balance sheets are unlikely to deflate any faster than after the Global Financial Crisis. But this time that policy script feels stretched. The pace of recovery is significantly faster than then, bouncing rather than edging back. More fundamentally, a slow exit risks putting central bank balance sheets on an unsustainable footing.”

So, the tapers and rate actions may be measured, but the markets won’t likely take the pace in their stride. As they are wont to do, markets tend to react sharply first and stabilize later. And that can be a risk for investors.

BULL RUN STRETCHED?

Money hasn’t stopped flowing into equities yet. Annualised global inflows into equities in the first half of 2021 stood at $1.2 trillion, which is more than the cumulative $0.8 trillion that flowed in during the period in the past 20 years, according to Hartnett’s Weekly Flows. This has led to the 7th highest first-half returns for stocks in the past 100 years, according to BofA. What’s more, on Friday, the S&P-500 achieved its longest run of record closes since 1997, according to Reuters.

Also read: Gross NPAs of banks may increase to 9.8% of total assets by March 2022, says RBI report

Some money still sitting on the sidelines is what’s keeping hopes of a final, ferocious bull charge alive, before it runs out of steam and calls it a day. But that day is coming, soon—if the money pipe is deflated.

What’s more, there’s less comfort on valuations too (Sensex’s price to book value is now not too far off from historical peaks in the past decade), and the risks of economies and businesses not sustaining an expected recovery are still not off the charts as COVID is still alive and kicking up new delta variants.

INDIAN HOUSING AN OUTLIER

But even as stocks and commodities have rallied, and there has been a pick-up in housing demand in India, as well, home prices are yet to inflate. In contrast, most other economies are seeing a surge in home prices, as big money is flowing into this asset class. India’s performance here seems to be hindered by its earlier ills, high inventory levels and stress in the sector. Some of that’s changing and consolidation in the sector is clearly on the cards. With these developments, realty could remain one bright spot that could play catch-up and stay more resilient when the tide turns.

Little wonder, that brokerage Jefferies in its India allocation has only two bets on the realty sector, to ride a cycle revival.

TIME FOR CAUTION

Given where things stand today, investors should be cautious in enhancing exposure to already hot stocks and commodities, because when the big daddies of central banking in the world turn their eyes, it could trigger a melt that may not be very pleasant to be in the middle of.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI to provide liquidity support of Rs 50,000 crore for fresh lending in 2021

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The Reserve Bank of India (RBI) on Wednesday announced to provide additional liquidity support of Rs 50,000 crore for fresh lending in 2021 to the India financial institutions (AIFIs).

In its first bi-monthly monetary policy for FY22, RBI Governor Shaktikanta Das said that liquidity support of Rs 50,000 crore for fresh lending in 2021 will be provided to financial institutions such as NABARD, NHB and SIDBI.

“In consonance with the policy objective of nurturing the still nascent growth impulses, it has been decided to extend fresh support of Rs 50,000 crore to the AIFIs for new lending in 2021-22,” Das said.

Accordingly, National Bank for Agriculture and Rural Development (NABARD) will be provided a special liquidity facility (SLF) of Rs 25,000 crore for a period of one year to support agriculture and allied activities, the rural non-farm sector and non-banking financial companies-micro finance institutions (NBFC-MFIs).

SLF of Rs 10,000 crore will be extended to National Housing Bank (NHB) for one year to support the housing sector.

To meet the funding requirements of micro, small and medium enterprises (MSMEs), SIDBI will be sanctioned Rs 15,000 crore under this facility for a period of upto one year.

All these three facilities will be available at the prevailing policy repo rate.

Das said the RBI will support the market with adequate liquidity via its various tool kits.

Catch Live Updates on RBI Policy here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow