RBI Policy Comments by Market Experts

RBI Policy Comments by Market Experts

RBI has kept the policy rates unchanged in its latest policy review meeting. TopNews presents views from market experts on RBI policy.....

Mr. Amit Gupta, Co-Founder & CEO, TradingBells

RBI keeps interest rate unchanged with an accommodative stance which was largely expected but the benefit of CRR to banks for the Auto, Home and MSME loans is a big positive for the overall market as liquidity was the main concern for economic growth. There is a big booster for the real estate sector in terms of extension of date of commencement of commercial operations of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification. So we can say that this monetary policy is an extension of the budget to boost economic growth.

The market is taking this policy on a very positive note where Nifty has taken out its crucial supply zone of 12100-12135. If it manages to sustain above this zone then it may head towards 12300 mark and even lifetime high can't be ruled out in the coming days while in the downside 12000-11950 zone has become a strong base.

Stock to Focus:

NBFC stocks like HDFC Ltd, M&M finance, L&T finance, Shriram transport finance, Bajaj Finance, PEL and LIC Housing finance are major beneficiaries for the move taken by RBI. In terms of banking stocks, Axis Bank, Federal Bank and IndusInd Bank are the key beneficiary. The relief for the real estate sector will be helpful for stocks like DLF, Oberoi Realty, Godrej Properties, Prestige, Sobha, etc.

Mr. Mayank Jalan, President, Indian Chamber of Commerce (ICC)

‘RBI’s repo rate has been kept unchanged at 5.15 per cent and reverse Repo rate is also unchanged at 4.90 per cent is a welcome decision and appreciated by Indian Chamber of Commerce.

Holding the repo and reverse repo rate same comes in consonance with the objective of having “accommodative” stance for reviving growth. It will also stabilize the current investment amid the rising retail inflation and boost consumption. As a Chamber we expect that the holding of the rate will complement the recent measures taken by the Government to boost the economy. The policy will be conducive to achieve the medium term target for consumer price index (CPI) inflation of 4% within a band of +/2 per cent alongside growth. The decision of holding the rates same twice in a row is taken to control the surge in inflation.’

Mr. Siddhartha Mohanty, MD & CEO of LIC Housing Finance

“We believe RBI Policy announced today will ease the norms to give relief to commercial real estate developers. RBI’s decision about the extension of Date of Commencement of Commercial Operations (DCCO) of project loans for commercial real estate, will provide comfort to companies developing such projects and also their lenders. It will benefit the banks as they will not need to downgrade the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector”.

Mr, Mohit Ralhan, Managing Partner & CIO, TIW Private Equity

“RBI has continued to keep the accommodative policy stance. It has already cut the policy repo rate by 135 bps since Feb last year. However, banks have not passed the rates cut fully to customers. The decrease in requirement of cash reserve ratio for housing, auto and MSME loans for 6 months is a positive move which is likely to result in a better lending environment.”

Mr. Abheek Barua, Chief Economist, HDFC Bank

In today’s policy announcement, while the RBI kept the policy rate unchanged – given the high inflation prints - it announced a number of measures to support growth. The announcement of the LTROs to provide durable liquidity and the CRR relief for on-lending to the auto, the housing and the MSME sector is likely to push credit growth. In an effort to improve transmission, the RBI also announced external benchmarking for medium enterprises.

Mr. Rahul Sharma, Research Head, Equity99

The RBI maintains the policy repo rate at 5.15% while reverse Repo rate is maintained at 4.90% and bank rate continues to be kept at 5.40% in its 6th bi-monthly Monetary Policy, to balance its twin objectives of maintaining inflation within target range of 4% (+ or - 2%) while also reviving economic growth. However, it mentions that it has other measures available as well to be able to bolster the economic growth besides policy rate. RBI expects the inflation to be higher in the short – medium term on the back of the fact that while streamlining of the vegetables’ supply will have positive impact on the prices, the increased prices of milk and pulses may remain high over medium term. The inflation is expected to rise up to 6.5% in Q4-2020, then come down to 5.4-5.0% in H1-FY2021, and further drop down to 3.2% in Q3-2021. The GDP is expected to grow at a lower rate of 5.5% -6.0% for H1-2021 compared to 5.9-6.3% growth that was projected for the same period in December 2019’s RBI monetary policy.

The accommodative policy stance with measures taken on improving credit availability and past policy rate cut transmissions, bode well for improving credit flow in the economy, especially to the MSME segment. RBI has made 135 bps accumulated rate cuts since February 2019. However, the policy transmission has been improving gradually in the credit market. The 1-year median MCLR rate fall has been at 55 bps while the weighted average lending rate (WALR) on fresh rupee loans has fallen by 69 bps for over the last year. This has been achieved with the new external benchmark system introduced by which the bank’s lending rates are being linked to the repo rate.

We believe that several measures taken by the government such as reduction in corporate taxes to 22% from 30% in September 2019 will make Indian business’ competitive with China while China is losing its competitive edge due to pollution issues and newly broken out epidemic such as Coronavirus. This competitive benefit get even more accentuated by the fact that the crude oil prices are likely to remain low due to the coronavirus endemic that can bring down cost of operations for Indian businesses. Secondly on the domestic front with rabi output expected to be higher and the agriculture prices are inching up, should boost the rural incomes. This coupled with cuts in personal taxes and GST rates should bolster the private consumption. All in all the outlook for Indian economy looks improving barring inflation conditions which is expected to improve as well over medium term. The budget outlay towards infrastructure is expected to help sectors like power, cement, aviation, transport and roads industry.

Mr. Raghvendra Nath, MD of Ladderup Wealth Management

"The RBI left the repo rates unchanged on the expected lines. There was wide spread expectation that the RBI may keep the repo rate unchanged because of spike in inflation in the last 2 months. Also the accommodative stance of the RBI and the decision to support growth going forward were as per market expectations. The CRR exemptions against the loans given to stressed sectors and one time restructuring for MSME should boost investor confidence and drive growth going forward. Also with the introduction of linking loans given to medium enterprises to an external benchmark should ensure better and faster transmission of rate cuts going forward."

Mr. Piyush Baranwal – Executive Vice President - Senior Fund Manager (Fixed Income), YES AMC

Two of the issues currently plaguing Indian financial markets are credit squeeze and muted monetary transmission to bulk of the other-than-prime borrowers hit by current demand slowdown or GoI’s push towards more formalization of the economy. RBI’s attempt to focus on these issues rather than doing more of the same in the form of repo rate cuts, which was anyways not helping the economy enough, is a very welcome move.

Removal of CRR requirement on incremental credit to retail loans for automobiles, residential housing and loans to MSMEs, extension of one-time restructuring scheme for MSME advances and 1-year extension allowed for date of commencement of commercial operations of project loans to commercial real estate should all help alleviate funding woes of these crucial segments of the economy. Similarly, LTROs, new floating rate loans allowed for Medium Enterprises and CRR forbearance on incremental credit to retail loans for automobiles, residential housing and loans to MSMEs should improve monetary transmission to crucial industry segments which are currently struggling. Overall, today’s policy should hopefully help start the virtuous cycle to pull Indian economy out of its current morass.