Debt Market vs Equity Market: Is RBI repo rate cut reaching to the end users?

The equity market and the debt market of India is still not getting the kind of returns it was expecting from the RBI's MPC (Monetary Policy Committee) meeting.

RBI's rate cut is aimed at lower interest rate scenario, but banks are reluctant in passing on the rate cut benefits to the end borrowers. Photo: Reuters

RBI Repo Rate Cut: After the successive Repo Rate cuts by the Reserve Bank of India (RBI), the equity market and the debt market of India is still not getting the kind of returns it was expecting from the RBI's MPC (Monetary Policy Committee) meeting. As a result, the Indian government had to revise its Gross Domestic Product (GDP) growth rate to 7.2 per cent while the loan applicants are still complaining about the Indian banks not ready to pass on the rate cut benefits to them. This has put both Indian equity and debt markets in limbo. Such a scenario is making a precarious condition for the personal finance management of the public in general.

Giving his views on the Indian equity market Anoop Bhaskar, Head – Equity, IDFC AMC said, "Fiscal 19 closed on a much happier note as compared to the start of the year. In India, the mood on election outcome became more positive giving a further leg up to investor sentiments. India (as represented by Nifty 50) registered a CAGR (Cumulative Annual Growth Rate) of 11.3 per cent, second highest after the US (S&P 500) at 13.5 per cent over the last decade (all returns in US dollar). India’s 10 year returns clearly outshone that of the Emerging Market Index (up 6.4 per cent), especially the other BRICS countries. China, during this period, registered a CAGR of 2.9 per cent."

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Speaking on the matter Suyash Chaudhary, Head – Fixed Income, IDFC AMC told Zee Business online, "In the first monetary policy review of the FY20, the Monetary Policy Committee (MPC) decided to cut repo rate by 25 bps (4:2 majority) while keeping stance neutral (5:1 majority). The Reserve Bank of India (RBI) has cut both its growth and inflation forecast as well. GDP growth forecast for FY 20 has been cut to 7.2 per cent with risks evenly balanced. Given the global and local backdrop, we expect there is more easing in the pipeline. The introduction of the forex swap tool for liquidity has had a very benign effect on short end rates, given that it has caused hedge costs to fall by around 100 bps. The spread between 4 to 5-year corporate bonds to 10 years has now risen to almost 70 bps," adding, "Our preference remains for spread assets like SDL and AAA corporate at the 10-year point. Spreads versus underlying government bonds have shrunk versus what they were in early March and we believe there may be more room to go given the underlying environment and policy thrust on transmission."

Gaurav Gupta, Co-founder and CEO Myloancare.in said, "We expect limited rate cut benefit for borrowers in response to RBI second repo rate cut in this year. While policy stance is directed towards signaling a declining interest rate scenario, banks are clearly reluctant in passing rate cut benefits to the end borrowers. The same gets reflected in marginal 10 bps rate cut announced by SBI in response to RBI repo rate cut."

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