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    HDFC Bank posts stable quarter with no major surprises

    Publish Date: October 30, 2018

    This week opened on a positive note: both Sensex and Nifty gained more than 2% on Monday (October 29).

    After two consecutive sessions of losses, Bombay Stock Exchange’s (BSE) benchmark index — Sensex — rallied by 718 points to 34,067, while National Stock Exchange’s (NSE) Nifty recovered by 221 points to reach 10,251.

    Related read: A look back at the financial markets for the day

    In fact, at one point during the Monday trading session, the under-fire Sensex had surged by more than 800 points. So, what led to the revival of the markets on Monday? Let’s look at some of the reasons:

    1) Heavyweights put on a show

    Two big companies — ICICI Bank and Reliance Industries — were in fine form on Monday. While Mukesh Ambani-led Reliance Industries improved by 4.11% on the NSE, ICICI Bank was the standout performer of the day by growing at more than 10%.

    Last week, ICICI Bank reported another quarter of steady improvement: its loan growth accelerated and its asset quality — quality of loans provided to individuals and corporates — improved beyond market expectations. You can read the report here to understand why the market is confident about the lender.

    Other banks performed well too, namely State Bank of India (8%) and Axis Bank (5%).

    The other big-hitters that did well today include Adani Ports, Indiabulls Housing Finance and Dr Reddy’s Laboratories.

    2) The RBI intervention

    Last Friday, India’s central bank reportedly announced its plan to infuse Rs 40,000 crore into the banking system. It aims to do so by buying government bonds in the open market next month.

    Known as open market operations (OMO), the central bank aims to buy bonds to give liquidity (physical cash) to banks.

    It a timely announcement because India’s banking system has been short of cash in the last three weeks, according to the Economic Times. The daily liquidity deficit has been hovering between Rs 87,500 crore to Rs 1 lakh crore.

    Injection of funds through OMO activity is expected to help the banking system conduct its daily operations — such as providing loans to businesses/individuals and ensuring people can withdraw enough money during the Diwali period.

    The November OMO is the second consecutive time the Reserve Bank of India (RBI) will tap the open markets. This month as well, the central bank had sounded out plans to buy bonds worth Rs 36,000 crore in the open market.

    3) Dip in oil prices

    Brent crude prices had surged to a four-year high late September — a grim situation for the Indian economy. We had covered this on September 25: 'Fuel prices on fire’.

    Naturally, the stock markets were spooked as well. The reaction of foreign investors was that of panic: they pulled out over $10 billion from both debt and equity markets this year alone over mac

    While the oil prices haven’t climbed down substantially, concerns over global economy has put crude on track: crude oil futures were at $77.35 a barrel, about 6.15% down from its September-end peak. While India would be comfortable around the $60 per barrel, the current prices are far better than what it was a few weeks back when it was hovering around the $85-mark.

    However, it must be mentioned that the threat of high oil prices may prove to be short-lived.

    The reason? US sanctions on Iran mean that India may have to import its oil requirements from other countries. Importing oil would be more costly because Iran allows India to buy oil in rupees instead of American dollar, which is the more expensive option.

    Therefore, the markets will keep their eye on what the Indian government will do to tackle the situation post November 4 — the day when the US sanctions on Iran kick in.

    4) Decline in bond yield

    The bond yield reduced to 7.8% on Monday — a situation that gave hope to the stock market.

    That’s because since bond yields — which are the safer option compared to equity — went down on Monday, investors saw more sense in putting their money in stocks in the hope of getting better returns.

    Generally, equity and bonds have an inverse relationship. When stocks perform well, the bonds go down and vice versa.

    6) Signs of recovery in global markets

    The European markets showed signs of recovery following healthy earnings reports. Even though Asian markets continued to remain shaky, the UK’s Financial Times Stock Exchange, Germany’s DAX and France’s CAC 40 all rose by 1% on Monday.

    7) Indo-China hope

    This would be a win-win situation for both countries. While India will able to reduce its import bill and stem the rupee slide, China can view this as an opportunity to widen its currency’s influence.

    If the news is confirmed, New Delhi will also be able to rein in the the $56 billion trade deficit with Beijing. This would also go some way in curbing the growing current account deficit — which is another problem that has plagued the Indian economy and spooked the market-watchers of late.

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