RBI announces measures to ease financial conditions: In an unscheduled announcement on 5 May 2021, RBI unleashed plethora of measures to ease the financial conditions and rolled out number of targeted measures to cushion the economic impact of surge in covid cases. The measures include:

·         Announcement to purchase INR 350 billion worth of government securities under G-SAP 1.0

·          On-tap liquidity facility of INR 500 billion with tenure of 3 years for banks for extending fresh lending support to various borrowers which have been impacted by the pandemic like healthcare, importer of vaccines, pathology labs, etc. Further, lending to these sectors upto 31st March 2022 is allowed to be classified as priority sector lending.

·          Banks are eligible to park their surplus liquidity up to the size of the COVID-19 loan book with the RBI under the reverse repo window at a rate which is 25 bps lower than the repo rate.

·          SLTRO for Small Finance Banks (SFBs) under which facility upto INR 100 billion at repo rate is provided to SFBs for fresh lending of upto INR 1 million per borrower

·          Allowed restructuring of loans to borrowers with aggregated exposure of upto INR 250 million who have not availed of restructuring before and were standard as of 31 March2021 will be eligible for restructuring till 30 September 2021

Macro-Economic Update:  

Surge in Covid -19 can act as temporary impediment for economic recovery but will not have major impact on full year cycle. Factors supporting economic recoveries are:

·         Government thrust on capex with higher budgetary allocation to capital spending

·          National infrastructure pipeline, steps to improve access to infrastructure financing, etc. should also aid the revival.

·          With a favourable base effect, FY22 is likely to witness a good growth rate

·         Improvement in global economy.

·         Over the medium term, Indian manufacturing sector could possibly become a beneficiary of shift of global manufacturing from China to other emerging markets.

Snapshot on Valuation across sector with respect to long term average

Source Kotak Equity