| March 27
We have all been following the markets reactions amidst the Covid- 19 outbreak. At individual levels, many of us might be battling financial concerns. With the nation-wide lockdown, the economy has already started taking the hit.
However, in order to put a break to the economic slowdown, RBI announced various measures today (27th March, 2020). It will not be an exaggeration to say that Indian Central bank has upped the ante and drawn daggers on COVID-19 with vengeance! RBI has gone big with a liquidity injection of 3.74 lakh Cr which is equivalent of 3.2% of our GDP.
• Repo reduced by 75bps to 4.4%. And reverse repo reduced by 90bps to 4%. After a long time LAF (liquidity adjustment facility) corridor has been widened to 40bps to push banks to lend more. MPC arrived at rate cut with a 4:2 majority and stance continues to remain accommodative.
• Liquidity Measures: 3.74L Cr liquidity infused in the system via 3 big measures
* TLTRO (Targeted Long Term Repo Operations) up to 1Lac Cr at a floating rate linked to REPO
and this liquidity will have to be deployed in Investment grade corporate papers. And these will
be regarded as HTM(Hold to maturity) and not mark-to-market. This will inject the corporate
market with abundant liquidity and reduce all clouds of uncertainty from NBFCs and few other
corporates. 1st auction of Rs. 25000 Cr will be today.
* CRR reduced to 3% from 4% of Net NDTL.
* Liquidity under MSF (marginal standing facility) increased from 3% to 2%
• Moratorium of 3months for payment of all Term Loans for all lending institutions. Separate FAQs has been released on this by the RBI.
• Deferment of 3 months on all interest payments on working capital facilities for all corporates. And none of this will result in asset downgrades.
• NSFR : Net stable funding ratio implementation has been deferred to 1st Oct, 2020.
• Implementation of Capital conservation ratio has also been delayed by 6 months
• Indian banks will now be allowed to participate in the NDF (non-deliverable forward) markets for currency trading/hedging.
One of the most important announcements was affirmation that all Private sector banks in the country are safe & sound. Stock prices are no reflection of bank’s strength and all deposit holders in the country are safe.
• Bond yields have rallied across the yield curve. 10yr has fallen from 6.3% to about 6.0% now.
• And not just the long-end, yields have eased off across the curve and should reduce substantially on the short end given the liquidity measures.
• This is likely to remove all clouds of doubts from Liquid, Money Market and Ultra short funds. These funds should rally from hereon.
• Overnight funds will become unattractive and yields will fall substantially on those.
• For less than 3 months money – Go for liquid funds. Suggested ones are Tata Liquid, SBI Liquid or Franklin Liquid fund.
• For 3 – 6 months money – Go for Money Market Funds. Suggested ones are Pru ICICI Money Manager, Aditya Birla Money Manager fund
• For 6 – 12 months money – Go for Ultra Short funds. Suggested ones are SBI Ultra Short Fund or IDFC Ultra Short fund.
• For over 12 months parking – Go for Low Duration funds. Suggested ones are IDFC Low Duration or SBI Low duration.
• For 3 years and above – Go for Banking & PSU Debt funds. Suggested ones are IDFC Banking & PSU Debt fund, Pru ICICI Banking & PSU Debt fund. Alternatively, even Corporate Bond funds could be considered in this segment.