Financials gain amid easing liquidity; Nifty PSU Bank index rises 2%

Illustration: Ajay Mohanty
Shares of financial companies including banks, non-banking financial companies (NBFC), housing finance companies (HFCs) and microfinance institutions (MFIs) were trading higher by up to 6% on BSE in early trade after the Reserve Bank of India (RBI) announced the plan to scale up liquidity infusion via purchase of government bonds.

Bajaj Finance, Indiabulls Housing Finance, Manappuram Finance, Dewan Housing Finance Corporation (DHFL), Indiabulls Ventures, Repco Home Finance, LIC Housing Finance, Mahindra & Mahindra Financial Services, Shriram Transport Finance Company, Can Fin Homes and Bajaj Finserv were up in the range of 2% to 6% on NSE.

At 09:50 am, Nifty PSU Bank was up 2%, while Nifty Financial Service index was up 1%, as compared to a 0.34% rise in the Nifty 50 index.

The RBI on Tuesday announced a massive bond buyback programme for the current fiscal year to address the liquidity deficit — a move that’s expected to raise bond prices and boost bank treasury profits when lenders need capital. The announcement came after the markets hours.

State Bank of India (SBI), Bank of Baroda, Punjab National Bank (PNB), UCO Bank, Dena Bank, Vijaya Bank, Bank of India and Andhra Bank from PSU banks were up 2% to 5%.

Nifty PSU Bank index was trading higher for the eight straight days, up 9%, against a 4.4% rise in the benchmark index.

In a notification on its website, the central bank said it would be injecting Rs 500 billion of liquidity in December through its open market operations (OMO), in which it buys bonds from the secondary market, against Rs 400 billion planned earlier, Business Standard reported. CLICK HERE TO READ FULL REPORT

Analysts have given a thumbs-up to the proposal to inject liquidity via the OMO. Indranil Sen Gupta, India economist at BofaML, says the move is in line with their standing call of Rs 1.5 tillion of RBI OMO in the March quarter. 

"Within days of assuming office, Gov Das has swiftly defused the liquidity crunch arising out of delayed RBI OMO despite FX intervention. This should end lending rate hikes that were hurting growth as base effects reverse. Second, large-scale RBI OMO will expectedly push the G-sec market into excess demand. We grow more confident of our call that the RBI MPC will cut 25bp in February/April with Gov Das seeing a "benign inflation outlook". We track at December inflation at 2.4% atop November's 2.3%. On balance, this should be positive for rate sensitives - bonds, financials," he wrote in a December 19 report.

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