Going against market expectations and its global counterparts, India’s central bank, the Reserve Bank of India (RBI), in its February monetary policy, unanimously left policy rates unchanged with repo rate at 4 per cent and reverse repo rate at 3.35 per cent. It also retained the accommodative stance in a 5:1 vote. This was the first monetary policy committee (MPC) meeting after the Union Budget 2022, which focused on accelerating economic growth than on boosting consumption.
Some market segments see today’s policy announcement to be in tandem with the Budget. Experts believe that RBI has chosen to focus on growth for two reasons. One is that the inflation is in RBI’s comfort zone. Two, it does not want to spoil the market mood as India’s most extensive initial Public Offering (IPO) of insurance behemoth Life Insurance Corporation of India (LIC) is likely to come soon. “The upbeat market mood will help in getting a good IPO subscription if the issue is priced well,” says a fund manager of a mid-sized fund house, on condition of anonymity.
Other experts also see today’s RBI announcement as a booster dose for equity markets. “RBI’s decision not to increase the reverse repo rate was a positive surprise. Its decision to continue to maintain an accommodative stance of the monetary policy clearly demonstrates its focus on prioritising domestic growth. This is positive for equity markets as growth would not be hindered by increasing cost of capital,” says George Heber Joseph, CEO and chief investment officer, ITI Mutual Fund.
Disinvestment Target And The LIC IPO
The much-awaited LIC IPO is expected to hit the market soon. According to some reports, the government is planning to file the draft red herring prospectus (DRHP) with the market regulator Securities and Exchange Board of India (Sebi).
Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey announced on February 1, 2022, after the Budget came out, that the LIC IPO’s DRHP is expected within two weeks.
In Budget 2021, the government had set an ambitious disinvestment target of Rs 1.75 lakh crore. This was revised to Rs 78,000 crore for this fiscal. According to DIPAM data, the government has disinvestment receipt of Rs12,029 crore till date. Considering the revised estimate of Rs 78,000 crore, the government is still falling short by around Rs 66,000 crore from its revised estimate. This makes a compelling case for the government to come out with the LIC IPO soon.
Indian equity markets welcomed RBI’s decision to maintain its accommodative stance. Today, the index started off on a flat note but soon picked up momentum on the upside after RBI’s monetary policy meeting. The Nifty index ended the day with gains of 142 points at 17,606 levels. Bank Nifty rallied 1 per cent. Market movements indicate that the stage is set for the LIC IPO.
