When the market made a 3% gap up opening, not many believed that these gains would sustain. The prophecy was almost fulfilled as the market stumbled post-the RBI governor's press conference. However, then we saw the market not just defending but surging past the crucial resistance placed around the 9,000-9,100 mark for the NIFTY .
In today's session, SENSEX gained 3.22% to close at 31,588.72 while NIFTY also gained 273 points to close above 9,200. Axis Bank (up 13.31%), Eicher Motors (up 10.46%) and ICICI Bank (up 9.81%) were the major gainers while Nestle (down 3.19%), HUL(down 2.10%) and Bharti Infratel (down 1.87%) were the major losers.
Global euphoria is the major torch bearer behind this rally. To add to it, US-based Gilead's claim on the success of its experimental drug on severe COVID-19 patients has set free the bulls. The University of Chicago, one of 152 locations participating in Gilead’s trial has claimed that their antiviral medication is seeing rapid recoveries in patients with nearly all patients discharged from the hospital in less than a week.
Fight against corona: India doing well
Analysing the COVID-19 related data points indicates efficient management by the Indian government. Cases are growing at five-day 11% CGDR (comprehensive general development control regulations) which is encouraging. India's lockdown exit strategy is going to be under sharp focus in the coming weeks. India has so far identified 170 hotspot districts and 350 green districts without any cases. These green zones contribute around 18% to the GDP.
Key takeaway: The government should start lifting the restrictions gradually from non-infected areas as it is assumed that life is going to take some time before returning to normalcy.
RBI: Mission 'Whatever it takes'
Reserve Bank of India (RBI) in the second round of relief package announced several liquidity easing steps for the NBFCs and Micro Finance. Here is the impact that it desires to create.
RBI has announced the targeted long term repo operations (TLTRO) worth Rs 50,000 crore. Banks can invest this fund in investment-grade bonds and companies. RBI has also mandated half of it going to small NBFCs and MFIs, thereby ensuring last mile liquidity.
A separate window of Rs 50,000 crore is also opened to support MSME and housing lending with Rs 25,000 crore allocated to NABARD, Rs 15,000 crore to SIDBI and 10,000 crores to NHB.
Reverse repo rate is also slashed by 25 bps to 3.75% from 4% while keeping the policy repo rate unchanged. The reduced repo rate will discourage banks from parking funds with RBI and instead utilize it for lending. Reverse repo rate is the rate at which the RBI borrows money from banks.
LCR (liquidity coverage ratio) requirement of scheduled commercial banks is also brought down from 100% to 80% with immediate effect. This shall be restored to 90% by October 2020 and 100% by April 2021. Reducing LCR will leave more spare funds with the bank which could be utilized to improve the liquidity in the market.
Key takeaway: RBI Governor Shaktikanta Das has once again kept his promise to do whatever it takes to get the financial system back on track. With newly adopted measures, RBI has once again done its bit to infuse fresh liquidity into the system and provided a lifeline to struggling NBFCs.