'Rs 50,000 cr liquidity crunch in the economy'

Worried over liquidity crunch in the economy estimated at around Rs 50,000 crore, the RBI on Saturday said the situation has worsened and it was taking measures to ease it.

"...during the last couple of weeks the number (deficit) has been clearly above that. That number was clearly about Rs 50,000 crore," RBI Deputy Governor Subir Gokarn said.

The RBI's policy statement on November 2 had tried to explain a comfortable liquidity band, which is plus or minus one per cent of the net demand and time liabilities (NDTL), Gokarn said.

The economy has been experiencing liquidity shortfall due to a spurt in festive demand coupled with an over Rs 20,000 crore absorption on account of the recent share sale offer of public sector undertaking Coal India and Power Grid Corporation (PGCIL).

"We moved to a deficit liquidity situation in end May or early June. But in the last few weeks it has gone beyond what we think is a normal or a positive liquidity deficit," Gokarn said in his address at a CII event here.

Stating that some deficit in liquidity is desirable, the RBI official, however, observed that in the last few weeks the liquidity situation has gone beyond the comfort zone.

To ease the pressure on liquidity, the RBI earlier this week announced special measures.

Under this banks would be able to avail more funds under the liquidity adjustment facility (LAF) for up to one per cent more on their deposits.

Gokarn pointed out that since the past few weeks, RBI has been taking measures to infuse liquidity into the system.

"During the past few weeks, we have relaxed the statutory liquidity ratio limits, did some open market operations and restructured the buyback and auctions of government bonds, to handle short-term liquidity problems, he said"

Liquidity deficit is desirable from the monetary policy transmission point of view, he said, adding the economy had earlier moved into a surplus liquidity mode.

This had been after the injection of money in the post-slowdown monetary measures adopted by the central bank and fiscal steps initiated by the government.

"An excessive liquidity deficit tends to bring about volatility in the short-term rates...that makes for some possible disruption for banking activities and credit flows," the RBI Deputy Governor said.

Bankers have also been saying that liquidity has been tight in the system but this is the first time a senior central bank official has flagged it as an issue of concern. For the past few weeks, the call money rates have been ruling at historic highs.

Gokarn, however, said, "the process of policy normalisation" is almost complete. There will not be further hikes in key rates in the immediate future, and "growth and inflation" will be the main factors while RBI firms up its responses.

It may be recalled that though food inflation has been on a southward spiral for the past one month, it is still at an elevated level of 12.30 per cent for the week ended October 30.

On inflation, Gokarn said it is still a mixed bag as food inflation has been waning.

Nifty climbs past 6300; JPAsso,M&M,Hindalco gain

Equities began Mahurat trading, first day of trade of Samvat 2067 (first day of Hindu calendar), on a bullish note as investors took positions across the board. All the sectoral indices were in the green led by auto, healthcare and banks while IT stocks were modestly higher.

At 6.30 pm; Bombay Stock Exchange’s Sensex was at 21018.98, up 125.30 points or 0.60 per cent. The index hit a high of 21108.64 and low of 21014.46 in trade so far.

National Stock Exchange’s Nifty was at 6313.65, up 31.85 points or 0.51 per cent. The broader index touched high of 6338.50 and low of 6310 in early trade.

BSE Midcap Index was up 0.81 per cent and BSE Smallcap Index gained 1.43 per cent.

Amongst the sectoral indices, BSE Auto Index jumped 0.85 per cent, BSE Healthcare Index rose 0.78 per cent and BSE Bankex advanced 0.76 per cent.

Jaiprakash Associates (4.32%), M&M (1.82 %), Hindalco Industries (1.72%), SBI (1.51%) and Sun Pharma (1.18%) were the top Nifty gainers.

Losers included Jindal Steel (-0.29%), Reliance Communications (-0.14%),HDFC (-0.10%), Suzlon Energy (-0.09%) and Ambuja Cement (-0.03%).

Shares of Coal India continued to soar higher on the back of sustained demand from investors. The stock was at Rs 352.25, up Rs 9.70 or 2.83 per cent. It touched intraday high of Rs 356.50 and low of Rs 343.

Ahead of CIL debut, Sensex climbs 120 pts on 'Dhanteras'

Stock market benchmark Sensex climbed 120 points today on the auspicious occasion of 'Dhanteras', and ahead of Coal India's debut tomorrow, to close at its highest level in three weeks on strong capital inflows.

In sync with the firm global sentiment, the Bombay stock Exchange's 30-share sensitive index settled the day higher by 120.05 points, or 0.59 per cent, at 20,465.74-- its best close since October 14, when the index had ended at 20,497.64.

The wide-based 50-share Nifty Index of the National Stock Exchange gained 0.68 per cent to finish the day at 6,160.50.

The upswing was led by metals, auto and financial stocks. The only laggard was oil & gas sector, with index heavyweight Reliance Industries Ltd among the major drags. RIL shed 0.8 per cent.

Analysts said all eyes are now on decision from the US Fed meet on its policy, especially on further economic stimulus to boost global economy and review from central banks in the UK, EU and Japan.

"Markets managed to garner smart gains on the auspicious occasion of 'Dhanteras', which is synonymous with wealth and prosperity. Besides, CIL's performance will decide the movement on the Street tomorrow," India Infoline Head of Research Amar Ambani said.

Metal stocks attracted strong buying and BSE Metal Index was the top performer among 13 sectoral indices. Sterlite rose 3.7 per cent, the most on Sensex, Tata Steel and Jindal Steel both 1.8 per cent and Hindalco 1.5 per cent.

Analysts said sector saw buying after Indian steel makers announced price cut of 2-3 per cent effective from November 1.

Major auto companies too were in demand, as most of the auto makers reported the highest ever monthly sales in October that was supported by the underlying momentum and a push from the ensuing festive season.

Tata Motors jumped 2.7 per cent, Hero Honda 0.7 per cent and M&M 0.32 per cent.

"This is seasonal trend and around this time of the year, manufacturers usually clear their channel inventories to meet the strong demand emanating from festivals such as Dushera, Id and Dhanteras," Elara Securities analyst Amol Bhutada said.

Financial stocks gained as investors took sigh of relief, after the Reserve Bank of India's statement that likelihood of further rate hike in immediate future is low. The central bank yesterday announced short-term lending and borrowing rates by 25 basis points.

SBI gained 2.19 per cent, HDFC 1.91 per cent, ICICI Bank 0.58 per cent and HDFC Bank 0.24 per cent.

"Although the overall action was aggressive than expected, the accompanying statement was much milder, with the Reserve Bank acknowledging that the likelihood of further rate hike in immediate future is low,"Edelweiss Capital note said.

ACC advanced 2.51 per cent, after the company reported an impressive rise in cement dispatch for October, analysts said.