RBI Measures To Boost The Sentiments And Help Equity Indices

It seems that the RBI is not keeping any stone un-turned to rescue the depreciating rupee and its related fall out in the Indian equity markets. In its line of initiatives the RBI announced another list of retrieval measures to bail out the banks. The measures include steps like conducting an open market operation (OMO) to purchase Government bonds. The RBI announced to conduct an OMO to purchase (not sell) government bonds of Rs 8,000 crore from the market on August 23, 2013. However, RBI will purchase only long-term papers including the government securities (GS) offering 8.15 percent rate of interest and maturing in 2022. This would ensure that liquidity tightening does not harden long-term yields sharply and adversely impact credit flow to the productive sectors of the economy.

In a second measure The RBI allowed banks to hold Statutory Liquidity Ratio (SLR) bonds in Held to Maturity (HTM) category at 24.5 percent of their respective total deposits. The last measure which we feel is very much positive for the markets is, banks can now spread over the net depreciation, if any, on account of MTM valuation of securities held under AFS/HFT categories over the remaining period of the current financial year (April 01 July 14) in equal installments. With the kind of positive measures announced, we expect the banking stocks to rally today. The moot question is whether it will help to arrest the continuous fall in the leading indices? We feel the measures will not only help the banks, but also help to provide some positivity on the sentiments front.

While this is the story on the domestic front, the global canvass is not that good. The European markets closed on the negative zone and even the DOW could not sustain early gains and closed on a flat note. The Asian peers are also trading in negative zone with Nikkei down (0.75%), Hang Seng Down (1.20%) and Shanghai Composite Down (0.42%). Globally the investors seem to be cautious ahead of the US Fed minutes. However the SCX Nifty is providing strong positive signals and is up by 69 points to trade at 5446.

One can expect a gap up opening today for the equity indices we are also expecting a rally in the bond markets as the traders are exuberant of RBI measures.