Blitz Bureau
NEW DELHI: The latest Reserve Bank of India (RBI) measures worth Rs 1.5 lakh crore to inject liquidity into the banking system should ease the stress in money markets, while the RBI will avoid any tightening of liquidity conditions and will potentially need to do more open market operation (OMO) purchases, leading brokerages said on Janury 29.
According to a note by HSBC, the focus will now turn to the Union Budget on February 1 and more crucially, the RBI monetary policy committee (MPC) meeting on February 7, with increasing prospects of a reduction in the repo policy rate (HSBC Economics forecast a 25 basis point cut in policy rate).
“We expect OMO auctions to purchase Government bonds to lead to a compression of term premiums and we maintain our buy on 10-year Government securities,” it added.
The central bank will conduct three OMO purchase auctions of Government bonds for an aggregate amount of Rs 60,000 crore. Three OMO auctions (Rs 20,000 crore each) will be held on January 30, February 13, and February 20.
Second, a six-month FX swap (USD/INR buy/sell swap) auction of $5 billion will be held on January 31. This will be equivalent to about Rs 43,000 crore of rupee liquidity. Third, a long-dated variable rate repo auction (56-day) of Rs 50,000 crore will be conducted on February 7.
A 56-day term will ensure that banks’ liquidity needs are covered through the end-March period.
According to a note by Emkay Global Financial Services, a turn in the liquidity cycle is a strong stimulant for domestic equities, and BFSI is the best way to play this in the short term.
“This is coupled with other positives — earnings forecasts have held up through January 2025 and valuations are now more reasonable. This may not be the absolute low for the markets, but we think it is a good time to start nibbling into stocks where valuations are now reasonable,” said Emkay Global.
