Stocks rise, rupee sees biggest single-day fall in 20 months
Stocks and bonds rose while the rupee weakened after the central bank pledged to infuse ₹1 lakh crore, kept policy rates unchanged and signalled its support for growth, even as the second wave of covid sweeps the country.
The Sensex rose 460.37 points, 0.94%, to 49,661.76, while the Nifty gained 0.92% to 14,819.05. The yield on the 10-year government bond fell 10 basis points from its intra-day high of 6.19% after the RBI said it will buy bonds from the secondary market this quarter, in a so-called Government Securities Acquisition Programme, or G-SAP, to keep borrowing costs low and support economic recovery.
Analysts said the markets were reassured by the RBI’s commitment to easy liquidity conditions, which came at the end of a three-day monetary policy committee meeting. “The RBI sounded more dovish this time and showed its strong commitments once again towards sustaining economic momentum by way of ensuring proper liquidity in the system,” said Binod Modi, head of strategy at Reliance Securities.
The rupee tumbled 1.52%, the most in 20 months, with analysts warning that the ₹1 lakh crore bond purchase will put pressure on the currency. The local currency closed at 74.56 a dollar, a level last seen on November 13. “A defined primary liquidity infusion via G-SAP is de-facto a secondary quantitative easing on defined balance sheet expansion of the RBI...Nonetheless, this will imply massive narrow money growth and primary liquidity which is clearly going to put depreciation pressure on INR”, said Emkay Research in a note to its investors.