The US Federal Reserve’s accommodative Policy stance and hint at lowering its policy interest rate as early as July to facilitate global economic growth boosted sentiment in regional markets, including Dalal Street.

Analysts say Fed’s affirmation that global economy faces uncertainty due to several factors such as continuing US-China tariffs stand-off corroborates the accommodative stance and guidance spelled out by the Reserve Bank
of India in the first week of June.

Market expects pick-up in foreign portfolio investors’ inflows into domestic equities.

The Fed’s decision , analysts say, is positive for emerging markets such as India.

10-year bond yields fell intra-day to 6.75 per cent which was the lowest since 17 October 2017, data with broking houses suggest. They say India’s biggest concern is money crisis in NBFCs.

Brokerages said investors ought to be cautious and selective about their stock choices to invest in view of Fed Chairman Jerome Powell’s statement that global economy faces challenge on account of “uncharted trade war and inexplicable inflation data in the US”.

He affirmed that domestic US macro was strong though weakened business income needed a close watch.

Likely subdued inflation and weakness in global economic growth have raised big uncertainties.

Analysts at Goldman Sachs see the first rate cut by Fed in July followed by one more cut in August.

Market participants in Dalal Street expect the RBI will also cut its short-term lending rate to commercial banks by another 25 basis points or 0.25 per cent in its next policy statement in August.

The 30-share Sensitive Index of Bombay Stock Exchange and 50-stock Nifty of National Stock Exchange opened with positive gap in line with their peers in Asia-Pacific.

They held on to their gains as European benchmarks in London, France and Germany also traded in green following European Central Bank’s dovish stance. Across the continents, analysts say, central banks are coming to
the rescue of respective governments/ administrations to prop up economic growth.

Dalal Street now looks ahead to the first budget of Prime Minister Narendra
Modi’s second term in power.

Expectations are high as economists have raised concerns over decline in consumption and no signs of pick-up in India Inc.’s capital expenditure or fresh investment that has been main reason for sluggish manufacturing sector. Corporates have already complained to the government about slump in credit takeoff.

However, Dalal Street buzz suggests Finance Minister Nirmala Sitharaman is likely to give precedence to small and medium businesses over bigger industry/ manufacturers.

Amid the concern over liquidity crisis facing nonbanking finance companies, particularly those prominently in housing finance business, Indiabulls Housing Finance announced that it would buy back its non-convertible debenture worth Rs 2,285 crore that would be maturing in July and August.

This resulted in nearly 5 per cent jump in its stock to Rs 587.65 on BSE and Rs 585.60 on NSE in intra-day trade. CEO G Banga claimed that Indiabulls HF has strong liquidity base unlike other companies in the same segment.

Since September 2018, Indiabulls HF has raised Rs 58,000 crore via term loans from banks, securitisation and issuing bonds. The housing finance company claims a cash cushion (buffer) of Rs 28,000 crore. Banga clarified
that Indiabulls HF has no exposure to Dewan Housing Finance Limited and Reliance Anil Dhirubhai Ambani Group (R-ADAG). However, last week Indiabulls HF share took a severe beating on the bourses on reports that a shareholder has filed a petition in the Supreme Court alleging misappropriation of investors’ funds totalling more than Rs 90,000 core.

The company has dismissed the allegations and today came out with a buyback plan of NCDs.

However, liquidity crisis in NBFC segment , analysts say, has raised yields on NCDs in the range of 12 per cent to 15 per cent.

They suggest investors with cash and risk appetite can consider putting their funds in such NCDs with sight on long horizon. Yields on AArated NCDs of Srei Infrastructure finance is up 12 to 21 per cent, Indiabulls Commercial Credit at 13 per cent and JM Financial Credit Solutions between 11 per cent and 1 per cent.

According to HDFC Securities Debt Finance’s Deepak Jasani, investors can consider such investment in some of these companies after proper and due diligence thereby freezing stable high returns for longer period.

But analysts say market participants are looking forward to the budget for which it has to say about liquidity crisis in housing shadow banking segment after RBI had in recent policy statement remained reluctant to bail out NBFCs with huge debt burdens.

Equity benchmarks accelerated momentum in late trade. Sensex ended 39,601.63 (+488.89) points gaining 1.25 per cent.

Nifty at 11,831.75 (+140.30) points was 1.20 per cent up.
Nifty Bank settled with 1.38 per rise at 30,781.10 (+419.00)
points.

In Sensex 27 shares advanced and three declined. For Nifty the ratio was 42:7:1.

Gainers in BSE benchmark included IndusInd Bank Rs 1,438.90, 4.05 per cent; Sun Pharma Rs 389, 3.53 per cent; LT Rs 1,558.55, 3.52 per cent; and ICICI Bank Rs 433, 3.12 per cent.