by Vipul Jain – Knowledge Desk.
The Reserve Bank of India (RBI) held its first Monetary Policy Committee (MPC) meeting of the year on February 5, 2021, in which key decisions were taken. Here, we explain in a short how that would impact the retails investor.
REPO RATE & REVERSE REPO RATE – Unchanged
The Repo Rate and Reverse repo rates were kept unchanged as 4% & 3.35% respectively. This was done by reiterating that the RBI stance being “Accommodative”.
HOW IT IMPACTS INVESTORS & MARKETS
This brings in the good news for the loan buyers and corporates, as this would mean lower loan interest rates would continue and thus would support growth in the economy. It is good for auto and real estate sector.
RETAIL INVESTORS CAN OPEN GILT ACCOUNTS : RBI Direct.
As per MPC 2021 Review, now retail investors can directly invest in GILT (Government Securities) and would be able to participate in the Primary & Secondary Bond Market, under the digital initiative RBI Direct.
HOW IT IMPACTS INVESTORS & MARKETS
This can been seen as a completely new product thrown open to retail investor. Currently, only institutions could directly invest in the same and thus any retail investor that had to invest had to route through GILT Funds. This would pull in and attract many investors who earlier had not ventured in this line.
While, the details of the set up and structure are still awaited, GILTS are highly rate sensitive and thus, retail investor should consider the risk factors and seek professional advice before jumping in.
This would enable government and the central bank to have the increased retail participation and thus more money would trickle in the bonds.
BANKS TO PROVIDE FUNDS TO NBFCs UNDER TLTRO
RBI has proposed to provide funds to NBFCs from banks under the Targeted Long Term Repo Operations (TLTRO).
HOW IT IMPACTS INVESTORS & MARKETS
This is a very important development, as NBFCs are the main source of finance to Automobile and Real Estate sectors. This is very welcome move and Finogent Advisory LLP strongly believes that will be a long contributing factor to the growth of Indian economy. We have seen Auto sector reacted positive to this news and many scrips gained over announcement.
RESTORATION OF CRR STARTING MARCH 2021
RBI has announced that banks have to revert back to the original Cash Reserve Ratio (CRR) and the said implementation has to be done in 2 phases – to 3.5% of Net Time & Demand Liabilities (NDTL) by March 2021 and 4% by May 2021.
HOW IT IMPACTS INVESTORS & MARKETS
This would impact the banks’ cash at hand, and thus they have to put aside funds to maintain this. In short term the stock price may see some stress, but nothing much of the concern, as the banking segment is slush with funds at this time.
NEW DIGITAL CURRENCY – Coming Soon
RBI plan to come out with its own digital currency and thus, soon a bill is expected to be passed, banning all private Crypto Currencies.
HOW IT IMPACTS INVESTORS & MARKETS
While nothing can be said till the bill comes with the fine print; however, many retail and HNI Investors would be staring on the wiping off of their current holdings if government does not provide them an option to redeem those or convert that to Indian Digital Currencies, although with taxation and scrutiny within Anti Money Laundering (AML) guidelines.
OUTLOOK
Over short term, in the fixed income segment short term funds are more attractive. Investors should not get into playing the duration play. While Inflation is inching towards the higher end of the spectrum, and we expect the rate hike if we are not able to control the inflation. That would have an impact on the client’s portfolio.
