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22/05/2020

Interest rate cut to revive demand; more support needed: India Inc

India Inc on Friday said the Reserve Bank’s surprise move to slash key interest rates will provide a much-needed respite to small businesses and also revive demand.

The industry said more support will be required on an ongoing basis both from the RBI and government to stimulate economic growth amid the COVID-19 pandemic.

The Reserve Bank unexpectedly slashed benchmark interest rates to their lowest levels since 2000 and extended the moratorium on repayment of loans for three months to ramp up support for the economy which is likely to contract for the first time in over four decades.

The benchmark repurchase (repo) rate was cut by 40 basis points to 4 per cent, the lowest since the benchmark came into being in 2000, Governor Shaktikanta Das said.

CII Director General Chandrajit Banerjee said the RBI should also consider extending this moratorium to NBFCs for their repayment to banks, without which the NBFCs sector is facing acute distress.

“Another move the RBI should consider is to allow one-time restructuring of loans to relieve stressed businesses. Group exposure limit for lenders to corporates to 30 per cent from 25 per cent is a welcome move too, as it is expected to help banks meet the borrowing requirements of the private sector,” Banerjee stated.

Ficci President Sangita Reddy said, “With the outlook for economic growth being very uncertain and RBI itself admitting that GDP growth in the current fiscal will be negative, Ficci feels that more support will be required on an ongoing basis both from RBI and government and we shall remain engaged and keep providing feedback on behalf of Indian industry to the policymakers and regulator.”

Mandar Pitale, Head – Treasury at SBM Bank (India), said the accommodative stance by the central bank is a further indication that it will not shy away from fiddling with interest rates going ahead, depending on the data.

“With job losses mounting and economic activity showing little signs of improvement due to the raging coronavirus scare, the move to extend the loan moratorium period should provide respite to individuals and small businesses,? Pitale added.?

Assocham President Niranjan Hiranandani said, ?RBI’s third presser since the lockdown is a continued effort to increase private consumption and provide liquidity access to all sectors hit by the COVID-19 pandemic. These measures will help revive demand crippled by the lockdown.

He said the continued proactive measures taken by the RBI will help address these issues and revive the economy in the second half of the year.

The central bank, which advanced the monetary policy committee (MPC) meeting for the second time since March, extended the three-month moratorium of loan repayments, from June 1 to August 31 and raised the limit on banks’ group exposure to companies.

It also increased credit for pre and post-shipment of exports from 1 year to 15 months and gave additional three months to foreign portfolio investors to meet investment needs.

The benchmark rates decide the interest on home, auto and other loans. They also dictate interest rates on savings deposits, which are likely to fall in tandem.

22/05/2020

Private banks beat PSU banks; now, have more number of borrowers than govt lenders-

Private sector banks have overtaken public sector banks (PSU banks) in the country with outstanding loans to more number of borrowers. The private lenders have reported a major expansion in their borrower base. From 8.68 crore borrowers a year ago, private lenders have reported the same at 12.60 crore in December 2019. While the number of borrowers of PSBs have also increased, it is not as stellar as the rate of private lenders, according to an RBI report, The Indian Express reported. The state-owned banks on the other hand, reported credit outstanding of Rs 58,49,986 crore, a marginal rise of merely 1% as compared to Rs 57,91,822 crore a year ago. The state-owned banks have managed to increase their borrowers base to 9.32 crore during the year from 9.17 crore a year ago, according to the RBI’s ‘Quarterly BSR-1: Outstanding Credit of Scheduled Commercial Banks for December 2019’ report.

Private banks have also expanded their share in loan outstandings in the calendar year 2019, In December 2019, private sector banks had a share of 35.7% in the total credit while the same stood at 32.2% a year ago and 30% two years ago. On the other hand, the same for public sector banks has fallen from 70% to 65% now. According to RBI, total credit outstanding of private banks stood at Rs 35,34,855 crore as of December 2019. In December 2018, the same stood at Rs 29,67,516 crore. This marks a rise of 19.11%.

Private sector banks have also witnessed a surge in their retail borrower base significantly last year. “Private banks have been focusing on the wholesale and retail customers — especially in the personal loan segment which includes auto and home loans. PSU banks started looking at the retail segment only recently,” The Indian Express reported citing unidentified sources. Last year was tough for the banking sector as the financial sector has been reeling under woes and credit growth has been sluggish too.

21/05/2020

NBFCs more at risk from COVID-19 than banks: Moody’s

Non-banking financial companies (NBFCs) in the country are more vulnerable to the risks brought on by the Covid-19 disruption than banks, rating agency Moody’s said on Tuesday.

Stresses on the liquidity and asset-quality fronts are set to be exacerbated for non-bank lenders, the firm said in a report.

“Asset quality at NBFIs (non-bank financial institutions) will significantly deteriorate as economic disruptions from the coronavirus outbreak deepen an economic slowdown that has been underway in the past few years. Asset quality at NBFIs has weakened in recent years amid worsening economic conditions, and the economic shock from the coronavirus outbreak will exacerbate this trend,” Moody’s analysts wrote in the report.

Asset quality deterioration at NBFCs on average will be more severe than at banks because the former set focuses more on riskier segments. Funding costs are also higher for NBFCs than for banks because non-bank institutions lack access to low-cost retail deposits. To compensate for this, non-bank lenders need to earn higher asset yields by focusing more on riskier borrowers.

“For instance, in both home loans and loans against property, NBFIs have a higher share of loans to borrowers working in the informal sector and self-employed employees than banks. This fundamentally exposes NBFIs to greater asset risks than banks,” the report said.

Exposures to corporates and the real estate sector will be most at risk. These borrowers had been facing liquidity constraints before the onset of the coronavirus outbreak, and stress among them will further worsen as heightened risk aversion among lenders and investors makes it more difficult for them to raise funds, Moody’s said.

To alleviate stress for borrowers, the Reserve Bank of India (RBI) is allowing financial institutions to provide a three-month moratorium on loan repayments for their customers. These measures will create a significant drain on near-term liquidity at NBFCs. Most of these companies do not have substantial on-balance sheet liquidity because they primarily manage liquidity by matching cash inflows from loan repayments by customers with cash outflows to repay their own liabilities.

“Moratoriums on loan repayments will result in substantial declines in cash inflows over the next few months,” the report said, adding that the latest government measure to effectively make a direct purchase of NBFC debt, announced on May 14, will provide some near-term relief, but it will not sufficiently address NBFCs’ structural funding weakness.

The extent of liquidity stress will depend on the number of customers seeking moratoriums and the degree of the economic shock. The longer restrictions on economic activity remain, the longer it will take for loan repayments to return to normal levels even after moratorium periods end. “In our base case, we assume that loan repayments will drop 50% during moratorium periods,” Moody’s said.

Non-bank lenders’ weakening solvency will raise risks for banks at a time when risks to systemic stability have increased because of a default by Yes Bank, which triggered deposit outflows at some smaller banks. According to data released by RBI, NBFCs owed banks Rs 8.07 lakh crore, as on March 27.

Simultaneously, heightened risk aversion among investors means NBFCs, especially weaker companies, will continue to have difficulty obtaining funding. With limited access to new funding, they will have to manage their liquidity through liquid assets on their balance sheets and customer loan repayments, Moody’s said.

Securitisation, which has been a key source of additional funding for NBFCs in the past year, will also become more difficult because collections from securitised loans will fall because of loan moratoriums.

21/05/2020

Gold price headed for Rs 50,000 per 10 grams in next quarter: Best performing asset in 2020-

Outlook for both precious metals remains bullish with gold prices expected to trade around Rs 50000 in next quarter while for silver, we anticipate prices around Rs 54000.

Gold once again has emerged as one of the best performing asset class in 2020 after stupendous 2019. Gold prices got shot in the arm after US Federal Reserve chief warned that a full recovery of the US economy could drag through 2021. The increasing tension between the US and China have light the fuel for gold. Last week, gold was going nowhere as spot prices were trading in narrow range of $1690-$1710.

The fundamental story for gold remains strong as money printing by central banks and vast state stimulus packages are rekindling interest in one of the oldest stores of wealth a.k.a gold. The same story was unfolding in 2008 when money managers piled in gold as an increase in money supply leads to a devaluation of fiat currency and increase in inflation. But in 2008, inflation was kept checked which is why gold had to scale back from high’s of $1970 but the unprecedented scale of the government response to the coronavirus crisis is feeding the argument that this time it will be different. In an environment where bond yields are close to zero, real interest rates are consistently under zero, there is no opportunity cost of holding gold. Historically, that is when gold has performed the best.

Silver meanwhile has finally shown some signs of life after lagging gold for several months. Silver is belatedly catching up gold and broke out $16 level. Silver future has broken out from 4 month downtrend line and the next resistance is $17.60-$17.80. Silver’s recent breakout is also good news for gold as we have historically seen that silver’s participation is necessary for gold’s rally otherwise gold’s rally is short term and fizzles out. So Gold needs its sister metal strength to rally further.

Outlook for both precious metals remains bullish with gold prices expected to trade around Rs 50000 in next quarter while for silver, we anticipate prices around Rs 54000. Silver has started to outperform as we can see from the gold/silver ratio which in a matter of days have come down from 108 to 100 and if the momentum continues then we can see levels before pre-crisis i.e. at 88. In the short term, both gold and silver are in overbought zone so we would recommend investors to wait for some dip before buying.

I remain bullish on Gold and Silver over the longer term as concerns of sustained global economic growth continue to linger. There are various avenues for investment in gold like Gold ETFs, Sovereign Gold Bonds and Digital Gold. For investors looking to invest in SIP way, they could opt for investing in Gold ETFs or through digital gold with small denominations. The only drawback in Gold ETFs is management fees and if an investor is looking for investing long term, Sovereign Gold Bonds are a good alternative. At any point in time, investors should have 10% of gold in their overall portfolio. With rapid depreciation of our currency against US dollar, gold remains a reliable hedge against inflation and store of value.

20/05/2020

ICRA warns of deep recession, GDP to contract 5% in FY21-

Domestic rating agency Icra on Wednesday warned of a deep recession as it drastically lowered FY21 growth forecast for India to minus 5 percent, citing the very modest fiscal support, extension of the nationwide lockdown and looming labour shortage.

The agency also sharply revised downwards the growth contraction in Q1 to 25 percent as against the previous forecast of 16-20 percent and to minus 2.1 percent in Q2 from 2.1 percent growth previously, which implies a recession.

Though the government has been claiming that its economic stimulus package is worth 10 percent of GDP or Rs 20.9 lakh crore, analysts have pegged it at just 0.8 - 1.2 percent of the GDP.

After the two phases of the nationwide lockdown, many experts warned of a minor contraction in growth.

But with the lockdown being extended to end-May, and expectation of substantial delays in getting the supply chains operational following the return of millions of migrant workers to their home states, Q1 degrowth will be deeper, and recovery will be shallower and more delayed than our earlier assessment, Icra said.

"Accordingly, we now expect FY21 growth to contract by a whopping 5 percent relative to our earlier expectation of 1-2 percent," its Chief Economist Aditi Nayar and Economist Aarzoo Pahwa said in a note.

Icra sees Q1 GDP contracting by 25 percent as against previous forecast of 16-20 percent and Q2 growth contracting by 2.1 percent from a 2.1 percent growth expected previously.

However, the economy may see a moderate 2.1 percent growth in Q3 (against previous estimate of 3.6 percent growth) and 5 percent in Q4.

The much-touted Rs 20.97 lakh crore package includes Rs 8.02 lakh crore monetary measures announced by the Reserve Bank since February as well as the Rs 1.93 lakh crore initially announced by the Centre and revenue foregone due to tax concessions.

According to Icra, these announcements are only enabling provisions to support a recovery after the lockdown by helping the most stressed sectors get working capital credit. None of these offer to absorb their losses from the lost output for more than two months, it said.

Moreover, the reforms announced will have any meaningful outcomes only with a lag of a few years.

"Overall, we estimate the direct fiscal cost of this package to be limited to 1 percent of GDP, or around 10 percent of the total announcements," they said, adding these measure will not be able to counter the demand destruction caused by the pandemic, or address the prevailing supply chain infirmities.

While the agency had earlier forecast a V-shaped recovery, it warned that if there is a second wave of infections and subsequent lockdowns either in India or globally, the ensuing demand uncertainty and supply chain hiccups may result in a W-shaped economic cycle.

On the labour issue, it said multiple extensions of the lockdown has created uncertainty and untold misery to the poor migrant workers forcing them to flee to their villages.

"With a considerable portion of their savings likely to have been used up over the last two months, we feel that they may choose to delay their return to the cities until after the festive season is over, which could affect the pace of normalisation in various economic activities, including manufacturing and construction," it added.

20/05/2020

Trade Setup for Thursday-

Benchmark indices closed 2 percent higher each with Sensex ending the session with a gain of 622 points at 30,818.61 and Nifty settling 187 points higher at 9,066.55.

"Benchmark indices closed up by more than 2 percent, in spite of mixed global cues and unabated increase in the number of infections across India. The government cabinet approvals of some of the proposed measures and leaving the door open for further stimulus measures could have played a part in the positivity.

Key support and resistance level for Nifty-

According to pivot charts, the key support level for Nifty is placed at 8,930, followed by 8,793.45. If the index moves up, key resistance levels to watch out for are 9,148.45 and 9,230.35.

Nifty Bank-

The Nifty Bank index closed 2.02 percent higher at 17,840.20. The important pivot level, which will act as crucial support for the index, is placed at 17,497.7, followed by 17,155.2. On the upside, key resistance levels are placed at 18,092.7 and 18,345.2.

19/05/2020

Gold slips Rs 1,032 per 10 gram, silver down Rs 1,320 per kg-

Gold prices slipped Rs 1,032 to Rs 46,829 per 10 gram in the Mumbai bullion market on the back of a stronger dollar-rupee.

The yellow metal was under pressure after drug maker Moderna reported promising results of its experimental novel coronavirus, or COVID-19, vaccine in an early-stage trials. This development prompted investors to book profits in gold, which has already risen by over 17 percent in 2020 till date (December 2019 close to high of 2020).

On May 19, gold continued to trade higher in early trade supported by strained US-China relations and a dismal global economic outlook, although ease off in restrictions in many countries spurred some risk appetite and capped the metal's gains.

Reports suggest that stock exchange Nasdaq is set to unveil new restrictions on initial public offerings, which will make it more difficult for some Chinese companies to debut on it.

Market participants will keep an eye on the unemployment data from UK and few housing numbers expected from the US.

19/05/2020

Trade Setup for Wednesday: Major Support and Resistance level you need to know-

The Indian market ended in the green on May 19, enduring profit-booking towards the end of the session, amid positive global cues.

The Sensex closed the day with a gain of 167 points, or 0.56 percent, at 30,196.17, and the Nifty settled 56 points, or 0.63 percent, higher at 8,879.10.

Sectorally, the action was seen in telecom, power, utilities, auto, while profit-taking was seen in capital goods, energy, realty and banks.

Key support and resistance level for Nifty-

According to pivot charts, the key support level for Nifty is placed at 8,812.82, followed by 8,746.53. If the index moves up, key resistance levels to watch out for are 8,987.87 and 9,096.63.

Nifty Bank-

The Nifty Bank closed 0.49 percent lower at 17,486.25. The important pivot level, which will act as crucial support for the index, is placed at 17,192.83, followed by 16,899.46. On the upside, key resistance levels are placed at 17,977.43 and 18,468.67.

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