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Below is the The Market Quote by Dr. Joseph Thomas, Head of Research - Emkay Wealth Management
The measures have addressed all the fundamental issues in a comprehensive manner using both conventional measures like cut in the repo rate to the tune of 75 bps and the CRR cut of 100 bps, and also substantial liquidity measures, apart from actions like access to domestic banks in offshore currency NDFs. The relief given on the repayments in term loans is indeed a very timely action and would serve to remove lot of stress which many borrowers may face in the coming days. This is a direct and targeted approach to the fluid situation in the face of an uncertain inflation and growth trajectory. This scaffolds the positive impact of the fiscal measures and strengthens our response to the adverse economic impact of the pandemic. The impact of the rate easing measures can only be gauged once the domestic as well as externa economies come out of lockdown. At the current juncture the growth variables are solely dependent on how quickly a cure for COVID-19 is found and the world is able to control the pandemic. In view of the highly uncertain situation, the RBI has refrained from giving any projected numbers for inflation and growth. These measures would definitely help in keeping the pastures green, till the time things return to normalcy.
The liquidity inducing measures would be supportive of the debt markets. In the wake of sharp sell-off by FIIs and in some part by domestic institutions led to yields hardening across the curve over the last one month. The corporate bond curve was especially hard it as market liquidity dried-up. The expected revival of participation from banks and mutual funds also getting a line of liquidity, the situation may normalise, and the combined effect of rate cuts may lead to yields trading with an easing bias from here on.
From a portfolio perspective, the easing rates and the liquidity will help yields to move down to lower levels. These measures augur well for both the equity and debt segments of the market. More than anything else, this is likely to bring in greater stability in the markets. There may be further action from the government and the RBI if the situation warrants, that is if the conditions further deteriorate. But let us hope and pray that it may not be required. The investors would be advised to continue to maintain investments at the shorter to mid segment of the curve, as the corporate bond segment has witnessed a spike in yields and at the current juncture this segment provides a dual benefit of high accruals as well as high probability of mark-to-market gains; phenomenon witnessed in 2019 as well. The investors would be advised to refrain from taking positions at the longer end of the yield curve, as additional fiscal measures to support growth may lead to increased government borrowing. An enhanced government borrowing may keep the long term rates sticky at elevated levels.
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