Policy balance
The recent appointment of Sanjay Malhotra as Governor of the Reserve Bank of India (RBI), replacing Shaktikanta Das, signals a pivotal shift in India’s monetary policy dynamics.
The Reserve Bank of India has echoed concerns of increasing froth in the small and midcap segments, a development coming after the Securities and Exchange Board of India alarm over the same.
In its monthly bulletin, the RBI said, “Stocks are riding an intense bull market — notwithstanding intermittent corrections — driven by a broad-based boom. While large caps are gaining, mid- and small-caps are rising even faster, with hints of froth and a spreading equity culture.”
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The FPI holdings in Indian equities have fallen to decadal lows at 16.3%, which is a sign of increased buying by domestic institutions, including mutual funds, it said.
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The RBI said the rupee is among the least volatile currencies and is steadily appreciating. “The INR has been bolstered by a pick-up in foreign direct investment by 11.4 percent year-on-year in October-December 2023,” it said.
Bond yields are at a nine-month low; corporate bonds are in strong demand with finer cut-offs, the central bank said.
“The inclusion of Indian sovereign bonds in global bond indices is spurring a strong demand for offshore rupee-denominated bonds issued mostly by multilateral institutions seeking exposure to India,” it added.
Notably, last month, mutual fund industry body, the Association for Mutual Funds (AMFI), had also said that SEBI has advised that given the froth in small and midcap stocks, mutual funds should put in place a policy to safeguard the investors in these schemes.
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