India Credit, Equity Markets Rally After RBI Ramps Up Stimulus
India Stocks Climb into Bull Zone Before Unscheduled RBI Address
(Bloomberg) -- Indian corporate bonds and bank stocks jumped after the central bank rolled out measures to support beleaguered shadow banks and laid the ground for more rate cuts.
Yields on top-rated 10-year local corporate notes declined up to 20 basis points, traders said. That’s the steepest fall in five months. Those on some top-quality rupee bonds of non-bank finance companies had one of the biggest drops in a year.
A gauge of bank stocks surged 6.8% to a one-month high. The S&P BSE Sensex rose 3.2%, up 22% from a March 23 low, meeting the definition of a technical bull market.
Indian authorities are stepping up stimulus along with peers around the world as the coronavirus pandemic plunges economies into recession. The stakes are particularly high for India, which has instituted the world’s biggest lockdown. It’s trying to balance steps to slow a surge in Covid-19 cases with efforts to keep markets from freezing up and hurting an economy already set for its slowest growth in a decade.
The RBI is injecting $6.5 billion into shadow banks and micro finance firms. It also offered lenders relief on asset quality recognition and said it would aim to maintain ample liquidity, while halting dividend payments by banks until at least September.
Giving funds to the nation’s lenders via the targeted long-term repos will help some of the domestic shadow financiers tide over a cash squeeze, according to Jindal Haria, a director of financial institutions at India Ratings. Some shadow banks will now be able to meet up to two months of cash requirements, helping them in the near-term on liquidity needs and fulfilling obligations, Haria said.
India’s earnings season is in full swing, with HDFC Bank Ltd., India’s most valuable lender by market capitalization, scheduled to release quarterly results on Saturday. The stock climbed 3.4%, trimming its year-to-date loss to 30%.
For sovereign bond traders, the RBI’s cut to the reverse repurchase rate spurred a rally in short-end debt, with yields on the 2024 bond dropping 26 basis points. Traders hoping that the central bank would announce massive bond purchases were left disappointed.
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