The liquidity booster shot from the Reserve Bank of India (RBI) was the need of the hour to support the economy which has virtually shut down due to COVID-19 induced lockdown.
The central bank has announced the second tranche of measures to boost the liquidity into the system via Targeted Long Term Repo Operations (TLTRO) and reverse repo rate which was reduced by 25 bps.
The steps taken by the government and the central bank are in line to safeguard the interest of the small borrower and shield the system from multiple non-performing assets or bankruptcies.
RBI has injected funds equalling 3.2 percent of GDP into the economy to tackle the liquidity situation, governor Shaktikanta Das said in a press conference. In his previous address on March 27, Das had announced a rate cut of 75 basis points and several other measures to support the Indian financial system.
Experts feel that the steps are in the right direction and the sectors that are likely to benefit the most are banking, NBDCs, as well as real estate.
“The announcement of the rate cut in reverse repo rate is much need for the economy to inject the liquidity into the financial institutions. NBFC and real estate sectors are highly likely to be benefitted,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor told Moneycontrol.
Financial stocks are likely to benefit. “Banks with extended liability franchise and strong capital adequacy ratio would benefit from RBI initiative to infuse liquidity and expand credit. ICICI Bank, HDFC Bank, and Axis Bank would stand to gain in the banking sector,” Sundar Sanmukhani, Head of Fundamental research desk, Choice Broking told Moneycontrol.
TLTRO 2.0 (Targeted Long Term Operations) of Rs 50,000 crore for purchasing investment-grade bonds of NBFCs would provide urgently needed liquidity support and ease some ALM issues of NBFCs.
“Though looking at wide disruption in the business landscape, the investor needs to stick to proven management with a strong balance sheet. At this time, we prefer good quality housing finance companies among NBFC space like HDFC and Can Fin Homes,” Vineeta Sharma, Head of Research, Narnolia Financial Advisors Ltd told Moneycontrol.
“We expect a slowdown in loan growth due to ongoing slump in construction, launches as well as demand. The expectation of price cut for housing units will also delay revival in loan growth. But the valuation multiples for HDFC and CANFINHOME have already corrected and reflects all the near term pains,” she said.
Naveen Kulkarni, Chief Investment Officer, Axis Securities Ltd likes ICICI Bank and Kotak Mahindra Bank look attractive. “In the NBFC space, Manappuram Finance looks attractive. Apart from BFSI, our key focus sectors are FMCG, IT, Pharma and Telecom,” he said.
Source:- moneycontrol.com