Capital markets recovering with the aid of stimulus packages

The Rs. 21 lakh crore relief announced by PM Modi has boosted the growth of bond markets in the country.

Capital markets recovering with the aid of stimulus packages. The government had announced a $277 billion (Rs 21 lakh crore) stimulus for small businesses and promoting its campaign for ‘Make in India’. This move is helping reopen the bond market to smaller borrowers and ease the nation’s credit crunch.

The coronavirus pandemic had plunged the capital markets and the demand for risky assets diminished in the early moths of April and May. With continued government support with RBI backing , issuance of local-currency corporate notes rose to a 15-month high of 51.7 billion rupees ($683 million) in June. 

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The nation’s small businesses and MSMEs, form the country’s base for domestic investment. The government is facing a budget deficit of as high as 7 per cent of gross domestic product, the widest in more than two decades, according to some estimates.

Recovery Post COVID-19

“Policymakers’ stimulus steps are working. As banks have begun buying bonds of lower-rated companies,” said Ajay Manglunia, managing director and head at JM Financial Products Ltd. “Risk-appetite is improving.”

To improve liquidity, the Reserve Bank of India has funded banks’ purchase of 1.13 trillion rupees of company bonds and has cut benchmark interest rates to the lowest level since the year 2000. The government has also provided guarantees to Rs. 3 trillion of collateral-free loans to small businesses and a 750 billion rupee special credit line for the banking sector.

Other key players in the local credit market, such as mutual funds, have remained more cautious. For mutual funds to become more open to taking risk. However there are needs to be a recovery in economic and business indicators. Said Bekxy Kuriakose. Furthermore, head of fixed income at Principal Asset Management Pvt.

Stock traders have a positive outlook of the market with Sensex rising 18.37%. But in the past 3 months as on July 8. There is a high expectation of an increased spending on consumer durables. Because in the post-COVID situation.