Stock markets fluctuate wildly after RBI’s big bang measures

Indian stock markets fluctuated wildly on Friday after the Reserve Bank of India’s (RBI) announced a sharp 75 basis point cut to the benchmark policy repo rate , bringing it to the lowest in over a decade at 4.4%. After opening high in the green, stock indices dived into the red after the RBI briefing before recovering mildly at noon.

According to stock brokers, the bourses dive into the red was driven by the RBI’s concerns over growth in the midst of the COVID-19 outbreak and big bang measures like a three month moratorium on EMI payments for all term loans.

While the BSE Sensex had surged as much as 1,140 points in the opening session to cross the 31,000 mark and the NSE Nifty by 368 points to cross 9,000, both indices began falling sharply after RBI Governor Shaktikanta Das’ statement.

However, while the Sensex was trading at 29,785.47 (down 0.5% compared to the previous day’s close) and the Nifty at 8,602 (down 0.45%) as of 11.45 am, the markets had re-entered green territory in barely half an hour.

As of 12.15 pm, the Sensex had regained the 30,000 level (up 0.21% from the previous close) and Nifty was trading at 8,713.75 (up 0.84%).

During his briefing to the press, Das said that the Covid-19 outbreak is likely to push the globe into a recession and India would not be immune, despite falling crude oil prices which were an upside for India. The RBI also refrained from giving any forecast for India’s GDP growth and inflation for the next financial year which begins on April 1 since the “outlook was highly uncertain and negative”.

The RBI’s liquidity measures announced today include the auction of targeted long-term repo operations and an increase in the accommodation under Marginal Standing Facility will make available a total Rs 3,74,000 crore to the country’s financial system. The measures announced come a day after the government unveiled a Rs 1.7 lakh crore package of free foodgrains and cash transfers to the poor to deal with the impact of the unprecedented 21-day lockdown.

While the markets reacted with uncertainty to the announcements, brokerages feel the measures are steps in the right direction.

“RBI, very correctly so, announced a comprehensive bazooka covering all aspects of the economy by taking measures system-wide both through liquidity, rates and regulatory forbearance (retail as well as for industry) and also targeted measures to manage the corporate bond markets. The measures should help in tiding through the end of the year issues which many banks/institutions were fearing and will go a long way in cushioning the dislocations in various markets. We expect additional scope for 40-50bps of rate cut with any further easing and extension of measures depending on the nature of spread of COVID-19,” said Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank.

Joseph Thomas, Head of Research – Emkay Wealth Management agrees. “The RBI announcement is inclusive of all the possible actions from a monetary policy perspective… This is a direct and targeted approach to the fluid situation in the face of an uncertain inflation and growth trajectory. This scaffolds the positive impact of the fiscal measures and strengthens our response to the adverse economic impact of the pandemic,” he said.