&w=3840&q=100)
RBI repo rate cuts alone can't shift India's economic growth gear
Clearly, it is not for the RBI and its monetary policy committee (MPC) to fix any of these deep structural issues and magically create growth
premium
Debashis Basu
Listen to This Article
On June 6, the Reserve Bank of India (RBI) surprised the markets — it sliced the repo rate by 50 basis points (bps) to 5.5 per cent and cut the cash reserve ratio (CRR) by 100 bps, phased over four 25-bp tranches from September to November. The move, expected to inject ₹2.5 trillion ($30 billion) into the system, briefly lifted spirits: The Nifty index climbed 1 per cent that day, with a modest gain the day after.
However, by the end of the week, the index had slumped below its pre-cut level. The rate cut is a sideshow. With the
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Time of India
13 minutes ago
- Time of India
How will RBI's STRIPS facility impact insurance companies?
Mumbai: The Reserve Bank of India last week allowed the STRIPS (Separate Trading of Registered Interest and Principal of Securities) facility in state government bonds-a seemingly technical change that could be a game changer for insurers. This facility is expected to allow insurance companies to manage cash flows and align their income from investments with future pay-outs to policyholders. STRIPS allows bond traders to strip principal and coupon payments and sell them separately. That means, the cash flows of a bond can be bought and sold. Bonds Corner Powered By How will RBI's STRIPS facility impact insurance companies? The Reserve Bank of India's decision to allow STRIPS in state government bonds is poised to revolutionize cash flow management for insurers. This move enables insurers to sell near-term asset inflows, aligning investment income with long-term policy payouts. STRIPS in state bonds offer a yield advantage and reduce reinvestment risk, making them attractive for long-term investors. RBI cancels 30-year green bond auction amid high bids India bond yields hit 5-week high as surging oil prices add to bearishness before auction RBI allows trading of state govt securities in STRIPS Banks see 15% rise in non-SLR investments in FY25 amid strong market returns Browse all Bonds News with "Insurance companies have long-term liabilities in our books, with little need for cash in the near term. STRIPS enables us to sell our near-term asset inflows, allowing better matching of our asset and liability cash flows," said Churchil Bhatt, executive vice president-investment at Kotak Mahindra Life Insurance Company. "STRIPS in state bonds add a dash of yield uptick to the already existing dual benefits of the product, namely additional duration and reduction in reinvestment risk," he added. Live Events STRIPS are bought at a deep discount and redeemed at face value, making them attractive to long-term, hold-to-maturity investors such as insurers, pension funds and passive debt funds. A key appeal of STRIPS in state bonds is their 30- to 40-basis-point yield pickup over STRIPS in central government securities (G-sec), along with the same sovereign backing, said Venkatakrishnan Srinivasan, managing partner, Rockfort Fincap, a fixed-income institutional advisory firm. In a notification on Thursday, the RBI said all fixed-coupon bonds issued by state governments with a residual maturity of up to 14 years and a minimum outstanding of Rs1,000 crore are eligible for STRIPS. However, these securities must be eligible for meeting the bank's statutory liquidity ratio requirements. Insurance companies have seen higher demand over the past few years for long-term products offering guaranteed returns. These companies look to deploy the inflows in such products in long-term assets like G-Secs and state bonds. According to bond market participants, STRIP has been permitted in eligible central government securities since April 2010. Extension of STRIPS will also help insurers reduce reinvestment risk, referring to the possibility of investors not being able to deploy proceeds from bonds at a desirable rate of interest. Transaction volumes in STRIPS have increased in recent years. According to data published by Clearing Corporation of India, the face value of STRIPS trades in G-secs rose to ₹2.47 lakh crore in FY25 from ₹38,383 crore pre-Covid in FY20. ETMarkets WhatsApp channel )
Economic Times
13 minutes ago
- Economic Times
How will RBI's STRIPS facility impact insurance companies?
Transaction volumes in STRIPS have increased in recent years. According to data published by Clearing Corporation of India, the face value of STRIPS trades in G-secs rose to ₹2.47 lakh crore in FY25 from ₹38,383 crore pre-Covid in FY20. The Reserve Bank of India's decision to allow STRIPS in state government bonds is poised to revolutionize cash flow management for insurers. This move enables insurers to sell near-term asset inflows, aligning investment income with long-term policy payouts. STRIPS in state bonds offer a yield advantage and reduce reinvestment risk, making them attractive for long-term investors. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Mumbai: The Reserve Bank of India last week allowed the STRIPS (Separate Trading of Registered Interest and Principal of Securities) facility in state government bonds-a seemingly technical change that could be a game changer for facility is expected to allow insurance companies to manage cash flows and align their income from investments with future pay-outs to allows bond traders to strip principal and coupon payments and sell them separately. That means, the cash flows of a bond can be bought and sold."Insurance companies have long-term liabilities in our books, with little need for cash in the near term. STRIPS enables us to sell our near-term asset inflows, allowing better matching of our asset and liability cash flows," said Churchil Bhatt, executive vice president-investment at Kotak Mahindra Life Insurance Company."STRIPS in state bonds add a dash of yield uptick to the already existing dual benefits of the product, namely additional duration and reduction in reinvestment risk," he are bought at a deep discount and redeemed at face value, making them attractive to long-term, hold-to-maturity investors such as insurers, pension funds and passive debt funds. A key appeal of STRIPS in state bonds is their 30- to 40-basis-point yield pickup over STRIPS in central government securities (G-sec), along with the same sovereign backing, said Venkatakrishnan Srinivasan, managing partner, Rockfort Fincap, a fixed-income institutional advisory a notification on Thursday, the RBI said all fixed-coupon bonds issued by state governments with a residual maturity of up to 14 years and a minimum outstanding of Rs1,000 crore are eligible for STRIPS. However, these securities must be eligible for meeting the bank's statutory liquidity ratio companies have seen higher demand over the past few years for long-term products offering guaranteed returns. These companies look to deploy the inflows in such products in long-term assets like G-Secs and state to bond market participants, STRIP has been permitted in eligible central government securities since April 2010. Extension of STRIPS will also help insurers reduce reinvestment risk, referring to the possibility of investors not being able to deploy proceeds from bonds at a desirable rate of volumes in STRIPS have increased in recent years. According to data published by Clearing Corporation of India, the face value of STRIPS trades in G-secs rose to ₹2.47 lakh crore in FY25 from ₹38,383 crore pre-Covid in FY20.
The Hindu
14 minutes ago
- The Hindu
Passively managed funds and portfolio allocation
The crux of your investment portfolio is allocation to various investment assets like equity, bonds, gold, etc. Within these are sub assets e.g. large cap/small cap stocks, long maturity/ short maturity bonds, etc. There is another approach to portfolio allocation. There would be a core part of portfolio, and a satellite component. The core component is not to be disturbed unless there is a drastic change in the market or in the fund. The satellite component is for taking tactical calls based on prevailing market situation. It is meant for taking advantage of extant market situations, and therefore the investment tenure can be short term. The more defensive the portfolio, the higher should be the core component as satellite is for taking higher risks. Passive funds The concept of passive funds is the fund manager does not take any decision on the portfolio. S/he does not take any decision on what to buy or when to sell. The fund manager's job is to follow the underlying index. As an example, if the underlying index is Nifty50 or Sensex, then the fund manager will mimic that. S/he will buy the same stocks as in Nifty/ Sensex, and maintain the same ratio in portfolio allocation. The returns, which simply follow the underlying index, will be similar as of the index. The returns will be marginally lower as there would be some recurring expenses in the fund and tracking error. Passive funds are available for various asset classes viz. equity, debt (bonds) and commodities. One passive idea or strategy can be followed by multiple Asset Management Companies (AMCs). Example, Nifty50- or Sensex-based passive funds. Two formats Passive funds are offered in two formats. One is Exchange Traded Funds (ETFs) where fund units are listed on the exchange i.e. NSE/BSE. Investors can buy/sell ETF units during trading hours. There is no purchase or redemption with the AMC for ETF units. The other format is Index Fund format, where you can buy or redeem with the AMC, like any other open-ended fund. The advantage of Index Fund format is liquidity; when you want money, just make the redemption request. In ETFs, the advantage is you can do multiple buy/sell trades a day. In Index Funds, you can buy/redeem only once a day, at end-of-day NAV. Active vs. passive There is a debate between active and passive funds, which one is better? In active funds, expenses are higher. The expectation is, these funds would generate returns higher than relevant benchmark, which is referred to as alpha. If the active fund is not beating the benchmark, then why should the investor bear higher expenses? The investor would rather settle for a passive fund. The passive fund would never beat the benchmark, but give similar returns i.e. not underperform grossly. You should allocate to both as per your objectives, suitability and performance of the funds. Should passives be part of core portfolio or satellite? There is a tendency to have passives in the satellite component as the core portfolio is expected to accumulate wealth over a long period of time via compounding effect. Since the fund manager needs a long time to outperform the benchmark, it should not be disturbed. In the satellite portion, since you are taking relatively higher risk, you minimise the possibility of the fund underperforming the benchmark. Having said that, there is a shift, with a good reason, to have passives in the core component of your portfolio. The portfolio allocation compounding and accumulating wealth over a long period of time should be defensive. That is, the risk of your exposures underperforming the benchmark should be low, as you do not want to go wrong on that part. The satellite portion is meant to bear the risk. If your call/the fund manager's call goes right, you earn superior returns. Conclusion Data shows over 50% of active funds not beating the benchmark. The outcome varies on whether it considers direct plan (relatively lower expense ratio) or regular plan (relatively higher expense ratio). Hence, go for active funds where there is scope for the fund manager to outperform e.g. small cap or thematic funds. In large cap funds, the scope is limited as the universe is only 100 stocks. Where you want to settle for market or near-to-index returns, passives are better which can be core. Where you want higher returns, beating the index, you can allocate in the satellite component. (The writer is a corporate trainer (financial markets) and author)
