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Propping the economy from all sides | BNP Paribas Mutual Fund

Propping the economy from all sides

Stock markets started the week on a low note with the extension of the lock-down in India and growing COVID -19 cases keeping investors cautious about the future of the economy. However, a slew of developments during the week boosted investor sentiment and pulled the markets higher before they settled marginally lower on the last trading day of the week. Investor sentiment took a turn for the positive after the country's finance minister Nirmala Sitharaman reportedly said that the government remains open to more economic measures as and when needed. Investor appetite further improved after the government announced the resumption of domestic airline operations from 25th May, almost two months after the operations were suspended on 25th March. Further augmenting the domestic positive sentiment was global optimism about a potential vaccine for the coronavirus. The week was capped by the Reserve Bank of India (RBI) reducing the repo rate by another 40bps to 4%.

Macro-Economic Updates

The RBI, in its first monetary policy meeting for FY21 made a slew of announcements in an attempt to revive growth and mitigate the impact of the coronavirus pandemic on the Indian economy. The measures announced by it included:

• A reduction in repo rate by 40 bps to 4%

• Extension of the loan moratorium previously announced by another three months

• A Rs 15,000-crore refinance facility

The RBI’s move comes in the wake of the announcements made by FM Sitharaman on Sunday (17 May). In the fifth and the final tranche of the economic stimulus package of the government, the measures announced related to MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme), healthcare and education, businesses, de-criminalisation of the Companies Act, ease of doing business, public sector enterprises, and resources related to state governments. In the previous tranches, the government had focused on addressing the land and labour laws, and liquidity.

However, it is important to note that the RBI continues to be concerned about the economic impact of the pandemic and acknowledged that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress. During the week, rating agency ICRA sharply revised its growth expectation for India to a 5% contraction in the current fiscal from 1%-2% growth earlier. It estimated sharper de-growth in the Q1 & Q2 of FY21 at -25% and -2.1% respectively, down from a range of 16%-20% contraction in Q1 and 2.1% growth in Q2 before.

Institutional Activity

Foreign portfolio investors (FPIs) have been net sellers of Indian equities through the week while domestic institutional investors (DII) have been shoring up Indian equities. For the period 15th May 2020 to 21st May 2020, FPIs have net sold Indian equities worth ~INR 7954 crore. In the same time period, DIIs have net bought Indian equities worth ~INR 5507 crore. However, for the month, both have clocked in a positive number.

www.nseindia.com  | bloomberg.com

Disclaimers: The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but BNP Paribas Asset Management India Private Limited (BNPPAMIPL) makes no representation that it is accurate or complete. BNPPAMIPL has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This information is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as 'will', 'would', etc., and similar expressions or variations of such expressions may constitute 'forward-looking statements'. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. BNPPAMIPL undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof. The words like believe/belief are independent perception of the Fund Manager and do not construe as opinion or advise. This information is not intended to be an offer to sell or a solicitation for the purchase or sale of any financial product or instrument. The information should not be construed as an investment advice and investors are requested to consult their investment advisor and arrive at an informed investment decision before making any investments. The Trustee, Asset Management Company, Mutual Fund, their directors, officers or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained in this document.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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