The Reserve Bank of India Governor Shaktikanta Das warned banks on Friday about "structural liquidity issues" if deposit growth lags credit growth. Das also advised banks to be cautious and avoid exuberance. Das asked banks to strike a "reasonable balance" between credit and deposit growth and noted that many household savings that were once deposits are now in mutual funds.
Top 3 Leads Today
- Formal job creation hits 10-month high with 985K new subscribers: EPFO.
- Indian airlines, airports and some brokerages affected by global IT outage.
- Budget, earnings, global trends to drive stock markets this week.
Market Recap: The Week That Was
- Money Markets Minute: Last week, the call money market remained stable. On Saturday, the call money rate ended below the RBI's standing deposit facility rate of 6.25% due to low demand for funds from banks. The weighted average call rate was 6.11%, down from 6.53% on Friday.
- Government Bond Brief: Last week, yields eased as liquidity improved. Yields were steady on Friday as auction cutoffs were in line with expectations. The 10-year benchmark 7.10% 2034 bond closed at a 6.96% yield, down 2 basis points over the week.
- Corporate Bond Beat: Yields eased by 5 basis points for shorter tenure bonds last week but remained flat for papers above 5 years and above. Trading volumes remained low as investors lapped bond issuances in the primary market. Market participants refrained from taking significant positions in the secondary market ahead of the Union Budget for 2024-25, set to be presented on Tuesday.
- Forex Flash: The rupee declined against the dollar by 0.1% weekly. The rupee fell to its lowest closing level on Friday despite the pressure from persistent dollar bids from two major international banks and a dip in its Asian counterparts, which was likely mitigated by RBI intervention. The rupee ended the week at 83.6625 against the US dollar.
- Stocks Spotlight: Last week, the benchmark indices' weekly gains were reduced to 0.1% by the Friday decline after they had climbed for seven weeks, the longest weekly winning streak since January 2018. Indian shares fell off record highs on Friday due to broad-based profit booking ahead of the national budget next week and a global cyber disruption that hurt firms across sectors. All 13 major sectors lost Friday. The small and mid-cap stocks with a more domestic focus declined approximately 2% each.
Trading Trends
Most actively traded Corporate bonds in the Standard Lot Market:
| ISIN | Security Name | Volume (Cr) | Avg. Yield(%) |
|---|---|---|---|
| INE053F08403 | 7.39 IRFC 15JUL34 | 1055 | 7.40 |
| INE115A07QS3 | 7.9265 LICHSGFIN 14JUL27 | 1015 | 7.86 |
| INE261F08DX0 | 7.58 NABARD 31JUL26 | 930 | 7.69 |
| INE062A08439 | 7.36 SBI 11JUL39 | 880 | 7.36 |
| INE261F08EI9 | 7.70 NABARD 30SEP27 | 725 | 7.63 |
Most actively traded Corporate bonds in the Odd Lot Market:
| ISIN | Security Name | Volume (Cr) | Avg. Yield(%) |
|---|---|---|---|
| INE03W107249 | 9.65 AFL 27DEC26 | 26.63 | 9.97 |
| INE020B07GH7 | 8.12 REC 27MAR27 | 22.16 | 5.18 |
| INE062A08272 | 7.73 SBI PERP 24NOV25 C | 21 | 7.58 |
| INE996U07172 | 11.70 SICREVACAP 08JAN26 | 21 | 12.36 |
| INE756I08272 | 8.55 HDB PERP 13JUN34 C | 20 | 8.51 |
Traded volume in corporate bonds by maturity:
| Maturity | Volume(in Cr) |
|---|---|
| 1Y | 4144 |
| 3Y | 5735 |
| 5Y | 2251 |
| 7Y | 389 |
| 10Y | 2288 |
Source: Harmoney data analytics
The Week Ahead
- Money Markets: On Monday, the one-day call money rate is expected to surge above the RBI's repo rate of 6.50% due to significant bank demand for cash. The rate may decrease during the week because liquidity is expected to be excess in the banking system.
- Government Bonds: Yields may open flat on Monday and drop slightly before the Union Budget on Tuesday. Investors eagerly await the government budget, which will provide fiscal deficit and market borrowing numbers. Traders anticipate a ₹250 billion drop in borrowing from the ₹14.13 trillion stated in the interim budget. The domestic bonds will also keep an eye on US treasury yields this week.
- Corporate Bonds: Corporate bond yields will track government bond yields this week. Volumes are expected to remain modest as investors assess the effect of any announcements in the Union Budget on Tuesday for fiscal year 2024-25.
- Forex: On Monday, the rupee could most likely track movements in the US dollar and crude oil prices for further cues. The trader anticipates the RBI to allow for incremental currency depreciation, although it will most likely be confined to 83.70-83.75.
- Stocks: Indian markets are expected to be volatile as the indices approach record highs and the Union Budget is presented next week. Analysts expect the Indian budget to increase consumption while being fiscally prudent. In addition, investors will eye the first-quarter earnings from Suzlon Energy, Coforge Ltd, Hindustan Unilever, Bajaj Finance, L&T, Axis Bank, Nestle India, and Tech Mahindra, among others.
Events This Week
July 22, Monday
- India Finance Minister to table the Economic Survey for 2023-24.
July 23, Tuesday:
- US Existing home sales for June.
- India Finance Minister to present Union Budget for 2024-25.
July 24, Wednesday:
- US Services and manufacturing PMI for July.
- US New residential sales for June.
- India PMI for July.
- India M3 Money Supply for Jul 12 week.
July 25, Thursday:
- US Advance estimate GDP for Q2.
- US Advance report on durable goods for June.
July 26, Friday:
- India Bank loan growth Jul 12 week.
- India Deposit growth Jul 12 week.
- India Foreign exchange reserves Jul 19 week.
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