RBI's shift to neutral stance have eased concerns of widening credit-deposit gap: Jefferies
T
he Reserve Bank of India's (RBI) shift to a neutral liquidity stance, is expected to ease liquidity concerns says a report by investment banking and capital market firm Jefferies.
"RBI's change of stance on liquidity, from withdrawal to a neutral position, should abate concerns. Also the growth rates between credit and deposit growth have now converged compared with a peak gap of 400bp over the past year. This, along with better deposit growth and easier liquidity, should be supportive of banks' net interest margins" said Jefferies
The report also says that the domestic equity inflows in India have averaged USD 7.5 billion monthly throughout 2024. From July to October, the monthly equity supply reached around USD 7 billion, contributing to a year-to-date total of USD 60 billion. The steady inflows have provided a strong cushion for the market.
Continued strong inflows into domestic equity mutual funds are running ahead of the still-expanding supply of equities as companies seek to take advantage of the high valuations.
Domestic equity mutual funds' net inflows rose to a peak of Rs450bn (USD5.4bn) in June and were still Rs405bn (USD4.8bn) in September.
In India, Jefferies observed a market correction, particularly in small to mid-cap stocks. The Nifty Index declined by 9.4 per cent from its peak in late September, while the Nifty MidCap 100 Index and Nifty MidSmall Cap 400 Index dropped 10.2 per cent and 9.7 per cent, respectively, by late October.
This correction coincides with the latest earnings season, which saw the largest wave of earnings downgrades since early 2020. Jefferies' India office revised FY25 earnings estimates downward for 63 per cent of the 121 companies reviewed, reflecting the highest downgrade rate in over three years.
The report adds that with the RBI's balanced liquidity stance and robust domestic equity inflows, market sentiment appears well-supported despite recent corrections and mixed earnings reports.
✔️ RBI's shift to neutral stance have eased concerns of widening credit-deposit gap: Jefferies
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