PullbackinequitiesandOperationTwist

In the late 16^th century the world was first introduced to the concept of joint stock holding companies. The need for the creation of shared equity was necessary for financing the risky sea voyages undertaken by the Dutch and Portuguese merchants. It was an ode to human ingenuity that as soon as the joint stock entities arrived on the scene, a healthy secondary market for trading those share certificates also sprang up. Over the years it got formalized and now we see it in its modern format. It is no surprise that now it has reached a state where the markets are open 24/7 all year round in some form or the other.

We also watch the markets closely and no better place to start than the Dow Jones, the benchmark US equity index. The Dow Jones had a muted day with slight gains. But post the market closure, the futures market was in the red. The reasons touted for the down move was around the negative news about a possible COVID vaccine. The rub off effect is visible on the Asian equity markets including India.

The Indian rupee on the other hand had a good day yesterday where it appreciated from 76.67 (Wednesday close) to 76.07 (yesterday’s close). The move was predicated on expectation of strong inflows on account of some large deals.

The major news though was in the G Sec markets where two important developments took place. First was the surprise announcement of a fresh edition of Operation twist for INR 10000 Cr. Under the scheme, the central bank announced the sale of CMBs and T bills with simultaneous purchase of longer dated securities. The intended and expected effect of the operation is to bring down the long term yields and “flatten the yield curve”.

Another important development was a relatively muted response to the second instalment of the TLTRO. Under TLTRO, the central bank was providing liquidity of 25000 Cr INR for the bidders but this time it was with some riders unlike the first edition of a similar operation conducted in March. This time round the terms of facility had a specific clause to compulsorily lend to small non-bank financiers and micro finance institutions if you avail the facility. Lenders only bidded for 12850 Cr INR of the total available pool of 25000 Cr INR. The reluctance to participate in the auction underlines the reality that concerns on credit trump the availability of cheap funds.

The 10 year benchmark bond yield rallied close to 16 bps in the trade yesterday, from 6.22 to 6.06. It currently trades at 6.12.