Anshuman Jha’s Post

India’s risk premium indicated by its credit default swap (CDS) based on the last 5-year data (source: CMAN, Bloomberg) has narrowed in the last one decade. CDS spread is a type of a derivative product that measures the default risk. From the peak of 300 bp in 2013 (taper tantrum) it narrowed to 150-200 bp between 2014-2016. It has further, steadily come down to 70-100 bp until 2020. While Covid and Russia Ukraine war did witness a rise in risk, touching short peaks of 170 and 200, the peaks were quick to recover. In the last one year, India’s CDS from 120 bp in March 2023, has narrowed to ~50 bp in April 2024. And it is perhaps at a historic low. Narrowing interest rate differential is a function of inflation differential. This has also perhaps been the primary factor of narrowing risk premiums as well. In addition to narrowing interest rate differential, improving fiscal and current account balances, stability in macro parameter, outperformance in growth, expectation of policy continuity are also drivers of narrowing risk premium. Implied Risk Premium measured based on Sovereign Bond Default Spread method can be measured as follows: Default Spread + Mature Market Premium (take US Market as proxy) = Equity Risk Premium (in US Terms) ; Add – Inflation Differential = Equity Risk Premium (in INR Terms). If both default risk premiums and inflation differential have narrowed, then implied risk premiums should also come down. This will bring down the cost of capital and cost of investment, therefore making India a relatively more attractive investment destination. India’s journey to become the third largest economy will not just be supported by domestic consumption but also via investment. Large investments in infrastructure, green energy, new technologies will require capital including external capital. As India’s risk premiums narrow, external capital will find India a more attractive investment destination. #indianeconomy #foreigninvestments #countryriskpremium #creditdefaultswaps

RBI Monetary Policy Meeting Highlights And Its Impact On Invest Market: The RBI's stand to keep repo rate unchanged at 6.50%. The RBI Monetary Policy Committee (MPC) has opted to maintain its neutral stance by keeping the repo rate unchanged. Inflation continues to be a concern at 6.25%, mainly due to high food prices, but it is expected to ease in the near future. The Reserve Bank of India reduced the Cash Reserve Ratio (CRR) by 50 basis points to 4%, bringing it back to its pre-April 2022 tightening cycle level. GDP growth forecast lowered:- Reserve Bank of India Governor Shaktikanta Das in the monetary policy meeting announcements lowered the projected GDP growth for 2024-25 to 6.6 percent, with growth expected to be 6.8 in the third quarter and 7.2 percent in the fourth quarter. He said that growth is expected to be 6.9 percent in the first quarter of next year and 7.3 percent in the second quarter. RBI's decision on inflation The Reserve Bank of India (RBI) has estimated CPI inflation at 4.8% for FY 2025, underlining the persistent challenges in balancing inflation and growth. Governor Shaktikanta Das said inflation has increased globally due to weather-related challenges, financial instability and geopolitical tensions. Impact on Investments Market: * Debt Funds: Government Bond Funds: These funds are expected to benefit from the unchanged repo rate and potential yield rallies. Investors with a long-term horizon may consider these funds. * Money Market Funds and Ultra-Short Term Funds: These funds are suitable for investors seeking short-term liquidity, offering stability and enhanced liquidity. * Dynamic Bond Funds and Long-Duration Funds: These funds are suitable for investors with medium to long-term goals, offering potential gains from interest rate reductions and bond value appreciation. * Equity Funds: The CRR cut is expected to positively impact the equity segment, potentially boosting the market in the coming months. #RBI #Monetorypolicy #Reporate #Invest #CRR #BANKING #NBFC #Inflation #Growth #IndianEconomy #Interstrate #RBIPolicy #Loans #CompaniesQ2Result #IndianMarket

𝗛𝗼𝘄 𝗠𝗼𝗻𝗲𝘁𝗮𝗿𝘆 𝗣𝗼𝗹𝗶𝗰𝘆 𝗜𝗻𝗳𝗹𝘂𝗲𝗻𝗰𝗲𝘀 𝗘𝗾𝘂𝗶𝘁𝘆 𝗠𝗮𝗿𝗸𝗲𝘁𝘀 🪙💹 Today, The RBI Governor Shaktikanta Das-headed six-member Monetary Policy Committee (MPC) kept the benchmark 𝗿𝗲𝗽𝗼 𝗿𝗮𝘁𝗲 𝘂𝗻𝗰𝗵𝗮𝗻𝗴𝗲𝗱 𝗮𝘁 𝟲.𝟱% for the eight consecutive time and decided to continue with its stance of 'withdrawal of accommodation'. Every two months, the Reserve Bank of India (RBI) sets the stage with its monetary policy decisions, impacting various facets of the economy. But have you ever wondered how these decisions trickle down to the stock market? Let's delve into the intricate relationship between monetary policy and equity markets: 💴 𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗥𝗮𝘁𝗲𝘀 𝗮𝗻𝗱 𝗦𝘁𝗼𝗰𝗸 𝗩𝗮𝗹𝘂𝗲𝘀: Lower interest rates set by the RBI can significantly reduce the cost of capital for businesses. This translates to enhanced stock valuations as future cash flows are discounted at lower rates, thus boosting investor sentiment. 💵 𝗥𝗮𝘁𝗲-𝗦𝗲𝗻𝘀𝗶𝘁𝗶𝘃𝗲 𝗦𝗲𝗰𝘁𝗼𝗿𝘀: Sectors like banks, NBFCs, automobiles, and real estate often benefit from lower interest rates. With a significant weightage in major indices like Nifty, movements in interest rates can sway market sentiment, impacting overall performance. 💶 𝗥𝗶𝘀𝗸 𝗥𝗲𝗱𝘂𝗰𝘁𝗶𝗼𝗻 𝗳𝗼𝗿 𝗖𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗲𝘀: Lower rates signal reduced financial risk for corporates, as borrowing costs decrease. This not only bolsters corporate balance sheets but also enhances market valuations in the medium term. 💷 𝗟𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁: The RBI's monetary policy also addresses liquidity concerns, crucial for sustaining equity market momentum. Adequate liquidity ensures market stability, preventing abrupt corrections and currency volatility. Monetary policy of the RBI addresses the twin issues of cost of debt and liquidity; both of which are extremely critical for the health of the equity markets. #monetarypolicy #stockmarket

📈 Exciting News in the Financial Markets! 📊 Bonds rally as RBI pays record dividend to govt 💰💼 #financialmarkets #bonds #RBI #dividend The recent announcement of the Reserve Bank of India (RBI) paying a record-breaking dividend to the government has sparked a significant rally in the bond markets. This move is indicative of the robust financial health of the RBI and bodes well for the overall economy. The substantial dividend payout signifies the strong performance of the RBI and its ability to generate surplus capital. It also illustrates the central bank's commitment to supporting the government's fiscal goals and stabilizing the financial system. This development has undoubtedly captured the attention of investors and market participants, leading to renewed confidence in the country's financial landscape. It further reinforces the notion of a dependable and resilient monetary authority. The impact of this news on the bond markets has been profound, as investor optimism has resulted in a surge in bond prices and a subsequent decline in yields. This trend reflects the favorable sentiment towards Indian fixed income securities and underscores the attractiveness of the bond market for both domestic and international investors. As we navigate through the dynamic landscape of financial markets, it's essential to stay informed and capitalize on opportunities that arise from such significant developments. The latest rally in bonds following the RBI's record dividend payment serves as a testament to the potential for growth and stability in India's financial sector. Let's continue to monitor these exciting developments and leverage them to make informed investment decisions. Stay tuned for further insights into the evolving financial landscape! #financialmarkets #RBI #dividend #bondrally #economy Your thoughts on this remarkable turn of events? Let's keep the discussion going! 🌐 Note: AI-powered post. May contain errors.

🔍 Unlocking Insights: RBI's Selective G-Sec Buyback In the realm of financial maneuvers, the recent buyback of Government Securities (G-Secs) by the Reserve Bank of India (RBI) stands out as a strategic move worth dissecting. 📌 Contextualizing the Buyback: At its core, the buyback signals a potential surplus in government funds, buoyed by robust Goods and Services Tax (GST) collections and anticipated dividends from the RBI. This surplus liquidity prompts a deliberate effort to manage market liquidity effectively. 📌 Analyzing Selective Acceptance: However, the RBI's selective acceptance of offers reveals a nuanced strategy. By declining bids that may have been priced above prevailing market levels, the central bank subtly guides interest rates and communicates its stance on future monetary policy decisions. 📌 Deciphering Implications: This partial buyback carries multifaceted implications. It may serve as a preemptive measure to mitigate rising bond yields, which pose challenges for the government by inflating borrowing costs. Moreover, the lower-than-expected acceptance suggests a tighter liquidity environment, potentially impacting various sectors of the economy reliant on credit accessibility. 📌 Looking Forward: The buyback has sparked robust discourse among market participants, prompting a quest to unravel its long-term ramifications for bond yields, market liquidity dynamics, and forthcoming interest rate adjustments. As we navigate these waters, one thing remains certain: the financial landscape is poised for intriguing developments. #Finance #RBI #GSec #MarketInsights #EconomicAnalysis

RBI’s Robust Strategies to Manage Rupee Fluctuations and Stress on Reserves 🚀 Strengthening India's Financial Stability: RBI's Strategic Moves 🚀 The Reserve Bank of India (RBI) has showcased its robust capacity to manage rupee fluctuations and mitigate stress on its reserves through several strategic measures. Here’s a detailed look at how the RBI is fortifying India's financial resilience: Enhanced Risk Management: Increased Contingency Fund: Provisions for the Contingency Fund have been raised to 6% of the balance sheet, up from 5.5%. This proactive step cushions against potential market shocks. Gold Reserves: The RBI has significantly increased its gold reserves from ₹2,30,733.95 crore to ₹2,74,714.27 crore, providing a reliable hedge against inflation and currency risks. Active Forex Market Interventions: The RBI’s forex operations, which significantly contributed to its income in FY23, reflect its proactive stance in stabilizing the rupee. Profits from these operations help offset stress on reserves. Technological Enhancements: e-Kuber System: Upgrades allow for the reversal of liquidity facilities under the Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) even during weekends and holidays, improving liquidity management. CBDC Implementation: The introduction of Central Bank Digital Currency (CBDC) for wholesale transactions enhances real-time settlements and reduces reliance on traditional systems like RTGS. Strategic Asset Allocation: By diversifying assets through increased holdings in gold and foreign investments, the RBI strengthens its financial position and mitigates risks associated with domestic and international economic fluctuations. These measures underscore the RBI’s commitment to ensuring financial stability and economic resilience, positioning India to better handle market volatility and currency fluctuations. Sources: Reserve Bank of India (2024) Annual Report 2023-24. Mumbai: RBI. Business Standard Business Today #RBI #FinancialStability #Forex #GoldReserves #CBDC #eKuber #IndiaEconomy #EconomicResilience

🚀 To-Do List for the New RBI Chief 🚀 As a uniquely Indian institution, the Reserve Bank of India (RBI) operates with de facto rather than de jure independence. Unlike the US Federal Reserve or the Bank of England, whose autonomy is protected by law, the RBI must skillfully balance collaboration with the government—particularly in times of crisis, like COVID-19—while safeguarding India's long-term economic interests. Historically, the RBI was often seen as an extension of the Finance Ministry. However, today's challenges demand a more independent and proactive approach from its leadership. The new RBI Governor steps in at a critical juncture, with: Slowing growth, Rising inflation, and Declining effective incomes. Externally, uncertainty over US Fed policy under the new administration adds complexity to India's exchange rate policy. Domestically, effective communication of monetary policy will play a crucial role in minimizing the need for drastic or frequent policy interventions. Key areas for focus: 1️⃣ Fiscal Independence: With the government pursuing medium-term fiscal consolidation, the RBI has an opportunity to operate without the shadow of fiscal dominance, giving it a freer hand to address monetary policy challenges. 2️⃣ External Benchmarks: Developing a wider range of benchmarks for loan pricing and tradeable bonds will strengthen financial markets and improve transparency. 3️⃣ Core Banking Evolution: From implementing expected-loss-based provisioning to enhancing fraud detection mechanisms and adopting ethical AI practices, the RBI must drive systemic improvements. 4️⃣ Climate Action: With the growing urgency of climate risk, financing India's climate transition remains a challenge, especially in light of the shortfall emphasized in COP29 targets. 5️⃣ Geopolitical Risks: Rising geopolitical tensions, potential trade barriers, and supply chain disruptions will continue to influence domestic price dynamics, complicating monetary policy formulation. The road ahead is undoubtedly challenging, but it is also an opportunity to reshape India’s monetary policy framework for resilience and growth in an increasingly complex global environment. 💡 What are your thoughts on the priorities for the new RBI leadership? Let’s discuss! #IndiaEconomy

📈 RBI's Strategic Measures: Sustaining Growth Amid Global Uncertainty 🌍* In today’s volatile global environment, the Reserve Bank of India (RBI) has demonstrated resilience through innovative measures beyond conventional interest rate cuts. As capital flows remain sensitive to geopolitical shifts and FII movements, the RBI's proactive policy responses aim to maintain economic stability and foster sustainable growth. 🔑 Key Interventions by RBI: 1. Liquidity Management via OMOs: Smoothens market liquidity by injecting or absorbing cash through Open Market Operations, ensuring financial stability without distorting long-term rates. 2. Forex Market Interventions: Active spot and forward interventions stabilize the INR and mitigate speculative volatility during turbulent market conditions. 3. Targeted Long-Term Repo Operations (TLTROs): Provide sector-specific liquidity to critical industries like MSMEs and infrastructure, fueling growth even in uncertain times. 4. Loan Restructuring & Moratoriums: Temporary measures during stress (e.g., COVID-19) prevented systemic risks by supporting borrowers, especially small businesses. 5. Priority Sector Lending (PSL): Directed lending mandates ensure inclusive growth by channeling credit to vital sectors like agriculture and housing. 📊 Strengthening Systemic Resilience: - Capital Adequacy & Liquidity Coverage Ratios: These ensure that banks have sufficient buffers, enabling them to absorb financial shocks and sustain credit flows. - Building Robust Forex Reserves: Acts as a buffer during FII outflows, maintaining confidence in the economy. RBI’s nuanced approach reflects a deep understanding of global risks and domestic challenges. The focus on balancing inflation control with liquidity and growth reflects a multi-dimensional strategy essential for long-term economic resilience. #RBI #Economy #Growth #Macroeconomics #FII #LiquidityManagement #ForexStability

🚀 Breaking News: RBI Announces Record Dividend & Markets React Positively! 📈 The Reserve Bank of India (RBI) has made headlines by declaring its largest-ever dividend of ₹2.1 lakh crore to the government, surpassing the previous high of ₹1.76 lakh crore in 2018-19. This windfall presents a golden opportunity for significant infrastructure investments and economic growth, or it could potentially reduce the fiscal deficit by around 1%. Market Response: - Stock Market Surge: Despite opening flat due to the Federal Reserve’s hawkish stance, the markets turned buoyant with the Nifty index hitting an all-time high (ATH), crossing the 22,900 mark and nearing 23,000 by the day's end. - Bullish Bond Market: The bond market also reflected optimism, with the 10-year government bond yields declining towards 7%. This development comes on the heels of the markets achieving a monumental milestone of surpassing the $5 trillion mark, setting the stage for an exciting and volatile financial landscape ahead. 🔍 Key Implications: 1. Economic Stimulus: If directed towards infrastructure, the dividend could fuel substantial economic development. 2. Fiscal Health: Alternatively, it could improve the fiscal balance, enhancing the country's financial stability. #RBI #Nifty