Tuesday, August 20, 2013

Banking stocks drive Sensex 300 points higher, RBI steps help - NDTV

The BSE Sensex opened sharply higher and the rupee gained on Wednesday on the back of new steps taken by the government and the Reserve Bank on Tuesday to support the beaten-down bond market.

The BSE Sensex surged over 300 points, while the broader Nifty jumped 100 points in opening trades. The Indian rupee pulled back to 63.12 after a negative start tracking the drop in 10-year bond yields, which dropped to 8.27 per cent against Tuesday's close of 8.9 per cent. The rupee, which hit a new record low of 64.11 yesterday, had closed at 63.25.

The strong start for equities come after markets fell around 6 per cent over the last three sessions. The Sensex has fallen over 1,000 points, dipping below the 18,000 mark in intraday trade, while the 50-share Nifty came close to breaching the key 5,300 mark in trade.

The big question would be whether this turns out to be a relief rally or the worst is over in the short term, another trader said.

On Tuesday, the rupee fell past 64 to the dollar for the first time and bond yields spiked to a five-year high before the Reserve Bank of India (RBI) stepped in to sell dollars.

Late in the day, the RBI said it would buy long-dated government bonds worth Rs 8,000 crore through an open market operation on August 23 and would decide after that on the amount and frequency of further operations as warranted.

The bond buying comes after a series of liquidity-tightening measures failed to support the rupee although these steps sent interest rates surging.

"I think the steps will help the rupee positively," as foreign investors are attracted back to Indian debt on the expectation of falling yields, said N.S. Venkatesh, treasurer at IDBI Bank.

Economic affairs secretary Arvind Mayaram said there was no need currently for a bond issue to non-resident  Indians (NRIs). He also ruled out capital controls, which is likely to soothe foreign sentiments.

The RBI also relaxed rules on mandatory bond holdings for banks, known as the statutory liquidity ratio, which will help protect lenders from large mark-to-market losses.

In contrast to an earlier rule asking banks to cut their hold-to-maturity bond holdings gradually to 23 per cent of deposits, the RBI on Tuesday allowed banks to retain those holdings at 24.5 per cent of deposits.

SL Bansal, chairman of PSU lender OBC told NDTV that the RBI's measures are a welcome relief for the banks.

"Banks were sitting on huge mark to market losses, but these unexpected losses since July 15 have been taken care of now," he added.

(With inputs from Reuters)

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