RBI keeps rates steady, tows Sensex to record

Industries and markets cheered on Friday as the Reserve Bank of India (RBI) decided to leave its benchmark interest rate unchanged at four per cent while maintaining an accommodative stance, implying more rate cuts in the future if the need arises to support the economy hit by the Covid-19 pandemic.

The benchmark repurchase (repo) rate has been left unchanged at four per cent, governor Shaktikanta Das said while announcing the decisions taken by the central bank’s Monetary Policy Committee (MPC).

Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with the RBI.

The central bank had slashed the repo rate by 115 bps since late March to support growth, and had last revised its policy rate on May 22 in an off-policy cycle to perk up demand by cutting interest rates to a historic low.

The committee has been given the mandate to maintain annual inflation at four per cent until March 31, 2021, with an upper and lower tolerance of six per cent and two per cent, respectively.

Conserve capital

The RBI on Friday asked scheduled commercial and cooperative banks not to make any dividends for the financial year ended March 2020.

In view of the ongoing stress and the heightened uncertainty on account of the pandemic, the RBI said it is imperative that banks continue to conserve capital to support the economy and absorb losses, if any.

The decision is based on the review of the financial performance of banks during the September quarter.

In response to the pandemic, the RBI has focused on the resolution of stress among borrowers and facilitating credit flow to the economy, while ensuring financial stability, Das said.

“In continuation of this effort and to help banks conserve capital, while creating room for fresh lending, it has been decided after a review that commercial and cooperative banks will retain the profits and not make any dividend pay-out from the profits pertaining to financial year 2019-20. Guidelines on the above measure will be issued shortly,” he said.

“Keeping in view the increasing significance of NBFCs in the financial system and their interlinkages with different segments, it has been decided to formulate guidelines on dividend distribution by NBFCs. Different categories of NBFCs would be allowed to declare dividend as per a matrix of parameters, subject to a set of generic conditions. A draft circular in this regard will be issued shortly for public comments,” he said.

Stocks soar, rupee eyes stability

The Sensex hit an all-time record of 45,148.28 while the Nifty achieved a fresh high at 13,280.05 in intraday trade. The Sensex settled with a gain of 447 points, or one per cent, at 45,079.55, while the Nifty ended at 13,258.55, 125 points or 0.95 per cent higher.

The rupee snapped its two-day losing streak to close 13 paise higher at 73.80 against the US dollar. At the interbank forex market, it opened at 73.81 and saw an intraday high of 73.70 and a low of 73.81. It finally closed at 73.80.

A moderate crude price environment, lower gold prices and increasing dollar denominated flows into the Indian economy has all the indications of a stable Indian rupee.

“We expect the dollar and rupee to continue with its positive trend towards 73.70 levels. Break of the same could push the currency towards 73.50 levels. However, sharp gains shall be restricted on back of persistent dollar buying by the RBI and banks, which will bring the currency under slight pressure,” said Abhishek Goenka, foundewr and CEO of IFA Global.

India can expect to attract $120-160 billion of foreign direct investment annually by 2025 if it manages to increase its FDI-to-GDP ratio between three to four per cent from less than two per cent now, the Confederation of Indian Industry and EY said in a report released recently. India received $35.37 billion FDI during April-August 2020, the highest so far for the first five months of a financial year.

Devesh Mamtani, chief market strategist at Century Financial, said: “The India rupee rose to 73.84 against the dollar, gaining nearly one per cent for the month, tracking heavy buying in domestic equities and sustained foreign fund inflows. Upbeat risk sentiments following a string of positive vaccine news and broad-based dollar weakness contributed to the rupee’s surge. The latest US FOMC minutes showed that the central bank`s asset purchases could be adjusted to provide more support to markets, which weighed on the greenback and supported the rupee.”

“On the other hand, India’s comfortable external balance position, wherein the country’s forex reserves have risen to $572.7 billion as of November 13, sufficient to cover a year’s imports, have been a key source of resilience for the rupee in recent months.”

Krishnan Ramachandran, CEO of Barjeel Geojit Financial that Services, said: “The rupee is expected to be in the range of 73.50 - 74.50 in the short term. The expectation of another round of stimulus to the US economy and a weakening US dollar index against a basket of its trade partners currencies should help the rupee to hold on to these levels, and there is also a good possibility for the rupee to appreciate closer to 73.00 levels. Though the Covid-19 vaccine appears to be a reality, the overhang of potential lockdowns and disruptions may have some contra implications to the rupee.”

Real estate cheer

India’s real estate industry in particular, stands to benefit due to several measures taken by the government so far.

Dr Niranjan Hiranandani, president of Assocham and Naredco, said: “The economy is recuperating at a quicker pace than anticipated is a very good sign. There are several sectors that are showing an upturn consolidating the fact that the GDP growth numbers would be positive soon. Home loans will continue to remain at attractive rates; this should augur well for home buying sentiment.”

Surendra Hiranandani, chairman and managing director of House of Hiranandani, added: “The growth in the economy has also been reflected in real estate activities of the last quarter where both residential as well as commercial markets have seen a sharp increase in activities. The reduction in stamp duty charges in some states and varied offers during the festive season coupled with a rate cut would have surely boosted the buyer sentiment further. Serious buyers have realised that this is the best time to buy.”

Kaushal Agarwal, chairman, The Guardians Real Estate Advisory

Owing to inflation concerns and steep reductions previously, the RBI was expected to keep rates unchanged. With commercial banks being asked to consolidate profits and not distribute dividends, it’s time the banks further sweeten the lending rates. With vaccine announcements around the corner and persistent recovery in the economy, the country can be expected to fully recover financially by the end of Q4 FY 20-21.

Lincoln Bennet Rodrigues, Founder and chairman, Bennet & Bernard Group

The real estate sector is yet to see the full swing impact of various measures announced recently by the government and we feel that a rate cut now would have given some respite to the real estate sector which has been facing headwinds due to the pandemic. However, we are upbeat as consumer sentiment is high, especially after they witnessed the brittle nature of other investment vehicles compared to real estate. The post-pandemic world will be good for the real estate sector as it offers you the best bet – stability, security and safety. So, one must take advantage of the current scenario and invest with a long term perspective to ensure superior returns.

Bhushan Nemlekar, Director, Sumit Woods Limited

Keeping the inflation in mind, the RBI was expected to keep the rates unchanged. The real estate sector already had a good festive season and we can see the recovery is expected to strengthen further. The sector is already optimistic because of the increased buyer interest in real estate assets and we expect the demand to sustain in the next quarter as well. The RBI has already announced several favourable measures this year for the real estate sector; however, more needs to be done such as the decision on Input Tax Credit and reduction in premiums at the State Government level.

— with inputs from PTI, sandhya@khaleejtimes.com