KEY TAKEAWAYS

* MPC voted by 5 votes to 1 to cut repo rate by 40 bps

* Reverse repo rate now 3.35%

IMPLICATIONS: Banks were reluctant to lend to Industry owing to Covid  & very happy keeping money with RBI earning @ 3.75%; Now since RBI has reduced reverse repo to 3.35% & made keeping money with RBI unattractive which in turn will force Banks to lend to the Industry which will be very good for the economy…  

Negative Impact: Fixed Deposits of Banks & Corporates will become completely unattractive

Positive Impact:

  • Certain DEBT Mutual Funds will see a positive impact in terms of returns owing to Capital Gains; (Remember whenever RBI Reduces Interest Rates Investors loose on FDs but gain in Debt Mutual Funds)  
  • Loans to become Cheaper….

* If CPI evolves as per path, room for further rate cuts may emerge

IMPLICATIONS: RBI is expected to reduce rates further if situation does not improve …further making certain DEBT Mutual Funds attractive…

INDIAN ECONOMY

* Downside risk to growth significant

* See FY21 GDP growth in negative territory

IMPLICATIONS: this is really bad for short term although India is relatively unscathed compared to the World Economies…  Short Term negative for Equity but any correction is an opportunity to buy further Equities using SIP/STP Route only with a 36 months horizon…

Do not commit any money that you need in next 24 months to Equity Markets…

* MPC sees growth reviving in Oct-Mar with downside risks

* Much to depend on how quickly COVID-19 curve flattens

* Top 6 industrialised states largely in red, orange zones

* Amid such gloom, farm and allied activities a beacon of hope

IMPLICATIONS: Agriculture & rural economy is saving grace as of now

* Food inflation surged in April

* Normal monsoon forecast provides a ray of hope

* FX reserves at $487 bln as on May 15

* FX reserves as on May 15 equivalent to 1-year import

* Must have faith in India’s resilience

 IMPLICATIONS: During 1991 Economic Crisis India had only a few weeks of FX Reserves left & hence was forced to pledge its GOLD with the IMF; from there India has come a long way & having FX Reserves equal to 1 Year of Imports gives lot of comfort …Also India’s Forex Reserve is mostly in terms of US Dollars & GOLD, both of which has appreciated over last few months…thus adding to India’s Forex Reserves…

RBI APPROACH

* Will be battle ready to use all instruments, fashion new ones

* To use all instruments, even fashion new ones to fight crisis

* Trying to take whatever measures possible

FINANCIAL SECTOR

* Moratorium on term loan extended by further 3 months

* Interest accrued in moratorium to become funded term loan

IMPLICATIONS: Borrowers last time got a 3 months moratorium ; Today RBI further extended that moratorium by another 3 months ie if you are unable to service your EMI for another 3 months you can opt for this moratorium; However we would advice you to avoid taking the moratorium if possible as in long run you might end up paying much more on your loan…

* Hike group exposure limit of banks to 30% of capital base

* Interest accrued in moratorium to become funded term loan

In nutshell, from an INVESTORS point of you, here should be your Strategy;

INVESTMENT STRATEGY:

  • DEBT MUTUAL Funds have become extremely attractive in decreasing Interest rate scenario & only Conservative Investment worth Investing…but be careful to use Professional Advice while selecting Debt Funds…Lay investors should avoid selecting Debt Funds on their own…
  • HYBRID MUTUAL Funds are our 2nd Best recommendation in these volatile times especially ASSET ALLOCAION Funds that automatically reallocate funds between Equity & Debt & keep rebalancing from time to time & therefore stand to gain from the extreme market volatility that we are experiencing nowadays…
  • Equity MUTUAL Funds are our recommendation for those with minimum 36 months Investment Horizon & we advise you to Invest only via SIP & STP route…This advice is especially good for those who have Child Education & Retirement Planning as there primary Goals; people with above two goals should look at this correction as an Opportunity of a life time…use SIPs & STPs extensively & aggressively…

Remember …”Never to Waste a Crisis”…

Investment made during crisis always without fail delivers above average returns, but it tests your patience & Conviction before delivering those returns…

Invest Wisely & only with Professional Advice

Leave a Comment

Your email address will not be published.

Show Buttons
Hide Buttons
Scroll to Top