RBI Governor, Shaktikanta Das made certain announcements today, 27th March 2020, in his presser. Everyone was expecting a rate cut and the same was disclosed but what came as a surprise that the rate cut which happened made the key indicators at its lowest in our history. The key indicators post the much-awaited rate cut are at the following levels:
|Indicator||Current Rate||Rate cut|
|Reverse Repo Rate||4%||90bps|
|Cash Reserve Ratio(CRR)||3%||100bps|
Reverse repo rate is cut by 90 bps to discourage the banks to park fund with RBI and this move will ensure more liquidity in the market.
In addition, RBI has also announced a Three-Month moratorium period for retail loan EMIs. RBI has permitted this moratorium period for term loans and credit card dues. This is welcome news for the people with temporary liquidity issues due to delayed salary payments or temporary salary cuts. In such situations, people can avail this option to ease pressure on their cash-flows.
This move has also allowed the banks to avoid NPA accumulation and keep their books healthy. Banks will not have to include excess provisioning for NPAs in case of defaults on retail loan EMIs in this period of crisis.
Further, to infuse liquidity in the system, RBI has also announced a repurchase operation of up to Rs.1 lakh crore. RBI governor also mentioned that if required by the economic conditions, there could be possibilities of a further rate cut.
Also read: RBI Monetary Policy
Current Market Situation
Amidst growing concerns regarding the intensity and duration of the impact caused by Coronavirus, the market outlook remains uncertain. There is a sense of panic among investors all over the world. The Indian government is proactively coming up with relief measures on all fronts. Today’s announcement comes on the back of the Finance Minister announcing relief measures for the underprivileged section of India where the government is infusing 1.7 lakh crore. Prior to that, the Indian government had majorly relaxed tax collection measures to provide relief to the Indian SME sector. India is in the state of a complete lockdown for a period of 21 days, 25th March 2020 – 15th April 2020. Now, the monetary policy committee has decided to infuse huge capital in the market to ease liquidity which will be around 3.2% of GDP compared to 1.4% of GDP earlier.
Considering all the above factors, the Indian Markets have been very volatile in the past couple of weeks. The relief measures announced by the government have given a temporary boost to the market and the markets have rallied over the past three days. This rally is seen more as an effect of the closing of FnO positions and investors had short sell. This volatility, in-spite of dragging the markets down to unprecedented levels, has also provided excellent opportunities for the investors to enter and increase exposure towards the Indian Equity market at a very cheap rate. As it is always said that you can catch hold of the lowest point so the current situation should be seen as a great opportunity to invest.
The current PE ratio for BSE SENSEX stands at 18.32, PB ratio at 2.34 and a dividend yield of 1.47 (Data points as on 27th March 2020). These fundamentals indicate that the markets have undergone a price/value correction and are possibly trading at cheaper rates. This provides excellent opportunities for investors to keep partially entering the markets at lower values, giving their portfolio a fair chance to grow at a rapid rate once the market undergoes recovery. So it is highly recommended to diversify your investments through time. Start accumulating!
Fixed Income options
The Fixed Income Option strives to provide the security of guaranteed returns over a long period of time. In today’s scenario when the Indian government is bringing in interest rate cuts, this product lets you lock-in a guaranteed rate over the entire period of the policy term. With RBI’s open market operations coming into the picture, the long term bond yields are likely to fall down to the range of 6 to 6.5%. This lowering of the long term yields has led to the scenario wherein booking today’s interest rates in the long term has become attractive. The Fixed Income Plan is one such product that lets you take advantage of this exact scenario and it allows for the booking at an attractive rate and upon the end of the policy term, provides returns that are guaranteed and thus it provides stability to the post-retirement cash-flow and thus ensures smooth retirement.
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