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Markets were expecting a rate cut; onus now on banks to pass on the benefit

Given the severity of the situation due to the Covid-19 pandemic, the timing of rate transmission holds great significance.

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Indian markets | Markets RBI Policy | Lockdown

Ambareesh Baliga  |  Mumbai 

Ambareesh Baliga, independent market expert (Photo: Kamlesh Pednekar)
Ambareesh Baliga, independent market expert (Photo: Kamlesh Pednekar)

The Reserve Bank of India's (RBI) decision to lower the repo rate by 40 basis points (bps) to 4 per cent on Friday is indeed a positive and welcome step. Both the government and the RBI are doing everything that is required at this crucial juncture to help stem the economic fallout of the Covid-19 pandemic.

However, the issue is whether this reduction in rate is passed on by the banks to the industries and other segments. As seen earlier as well, the transmission of interest rate cut to the end consumer has been slow. Hence, we need to watch what happens at the ground level. Given the severity of the situation due to Covid-19 pandemic, the timing of rate transmission holds great significance. Companies are facing working capital shortage; hence, there is no point in providing funds after three months. They need money on an immediate basis. The transmission has to be faster than what we have seen earlier.

The negative GDP growth rate projection for the financial year 2020-21 (FY21) doesn't come as a surprise, as a number of economists and brokerage houses had already stated that earlier. Additionally, with the being extended for the fourth time and businesses facing severe disruptions from both supply and demand side, an update on the economic forecast as seen by the RBI was quite expected. It's just that the RBI has now made it official.

As far as equity are concerned, the current developments have already been discounted by the market participants given the However, what is not discounted by the market is the second wave of Covid-19. If that happens and there's again a stringent lockdown, it will not be taken well by the

I have been saying, one of the time-tested modes of pulling an economy out of distress is to increase spends on infrastructure. Somehow, this seems was missing in the last week's stimulus measures announced by the government, though it had announced in 2019 the intent to spend a substantial amount over the next five years. I had expected front-loading of that in the series of announcements made by the FM last week.

That said, if the economy opens up more from June and things go smoothly, one can expect to gain further ground and then consolidate. June quarter will be a complete washout for India Inc as regards financial performance. In my personal view, even the September 2020 quarter doesn't hold much promise. However, December quarter onwards, some green shoots will be visible, provided there is no second wave of Covid-19.

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Ambareesh Baliga is an independent market expert. Views are his own

(As told to Swati Verma)

First Published: Fri, May 22 2020. 12:04 IST
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