The Reserve Bank of India has kept the key rates unchanged in the recent policy meeting. The lockdown announced due to COVID-19 has led to troubled times for Indian economy and we have witnessed strong recovery in many segments. Comments on RBI policy by Abhimanyu Sofat, Head of Research, IIFL Securities follow...

Despite not cutting benchmark interest rate, RBI has announced a significantly dovish monetary policy will slew of measures. Doubling of size of open market operations to Rs. 20,000 cr, RBI participation in state development loans, allowing co-origination of loans by HFCs are combined big ticket announcements for both bond market and financial sector stocks. Housing finance companies, small NBFCs are likely to outperform as a result of these announcements. RBI is expecting a significant fall in inflation in H2 which has been higher due to supply chain challenges to justify its dovish stance.

Extension of HTM limits by additional one year, on tap TLTRO are going to provide significant relief to the bond market. Investors can increase their allocation to the BFSI space as we see more availability of money at lower cost to help in strong rebound in the sector.