RBI seeks to calm nerves; how market is decoding its ‘watching closely with SEBI’ message

By: | Published: September 24, 2018 2:47 PM

Even though the latest statement by RBI and SEBI that they are “closely monitoring recent developments in financial markets and are ready to take appropriate actions, if necessary," comes without any specifics, it may be a good news for the stock markets.

sensex, niftyDeepak Shenoy is of the view that in case of rising redemption pressure in mutual funds, RBI may open a line of credit through banks for them to borrow and use the bonds they own as collateral.

Even though the latest statement by RBI and SEBI that they are “closely monitoring recent developments in financial markets and are ready to take appropriate actions, if necessary,” comes without any specifics, it may be a good news for the stock markets, says a veteran equity market researcher. “RBI and SEBI say they’re on the case. This is a good piece of news and I really don’t want specifics. Here’s why,” Deepak Shenoy of Capital Mind tweeted.

“To be more specific is not possible. The debt markets have not seized up. Some stocks have fallen but that’s not abnormal. Does RBI say they’ll provide liquidity? Then there will be fear that liquidity is a problem (it’s not, yet). So, the better option: Don’t predict,react,” he also tweeted.

Deepak Shenoy is of the view that in case of rising redemption pressure in mutual funds, RBI may open a line of credit through banks for them to borrow and use the bonds they own as collateral. “However, they are expected to only take the highest rated paper initially – in a full blown crisis they will take more,” he also said.

There isn’t a massive problem other than in a few companies, and those companies are mostly not borrowing from the bond markets anyhow, he also said.

“So the point of telling us that they are ready means this: RBI will provide liquidity (in the form of pass through credit – they have done this before) if needed. SEBI is likely to supress rules that require rating or anything else that prohibits buyers from the markets,” he also tweeted.

Meanwhile, on Friday last week the BSE Sensex, which opened on a strong footing, suddenly tanked 1,127.58 points, or 3.03 per cent, to hit a low of 35,993.64 in afternoon trade, before staging an equally sharp recovery within minutes. It finally closed at 36,841.60, down 279.62 points. It saw an intraday swing of 1,495.60 points. The broader NSE Nifty shed 91.25 points to finish at 11,143.10.

Overseas investors have pulled out a massive Rs 15,365 crore ($2.1 billion) from the capital markets so far in September, after putting in funds during the previous two months, on widening current account deficit coupled with global trade tensions. Foreign portfolio investors (FPIs) remained net sellers and offloaded equities worth Rs 2,184.55 crore while domestic institutional investors (DIIs) made purchases worth a net Rs 1,201.30 crore Wednesday, provisional data showed.

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