RBI's ICRR Move Propels Nifty to Six-Week High: What You Need to Know



Unlocking Nifty: Indian markets jump on RBI's ICRR move

In the dynamic world of finance, where markets fluctuate like the tides, one significant event can send ripples across the landscape. In this case, we're diving into the exciting realm of the Indian financial markets, where the Nifty index recently hit a six-week intraday high. This remarkable surge was driven by a combination of several factors, including investors' renewed interest in banking stocks after the Reserve Bank of India (RBI) announced the phasing out of the incremental cash reserve ratio (ICRR). In this article, we will analyze the implications of this decision and explore the prospects of the Nifty index as it moves towards new highs.

Tremendous rise in Nifty

The day saw the Nifty close half a percent higher at 19819.95, its highest close since July 20, and the Bank Nifty also rose 0.6% to 45156.40, its highest closing figure in nine weeks, amid a wave of market enthusiasts and investors. There was a reason for this. celebrate. The surge was driven by RBI's commitment to close ICRR by October 7.

But what exactly is ICRR? This financial term, which represents 10% of the bank's net demand and time liabilities, refers to the funds that banks are required to park with the RBI without earning any interest. By phasing out ICRR, the RBI has freed up these funds, which will potentially lead to increased lending activities – a move considered favorable for banks.

Estimates and expectations

With this exciting turn of events, analysts are eager to speculate what will happen next for the Nifty index. Many experts predict that the spot Nifty index will test its record high of 19991.85, a milestone set on July 20. It is believed that this benchmark could be achieved as early as next week, with the index also set to break the psychological 20,000 mark.

Notably, the Nifty futures contract expiring on November 30 has already crossed the 20,000 mark and closed at an impressive 20,088. This development has brought hope to the market and investors are keeping a close eye on the performance of Nifty in the coming days.

Origin of ICRR and its impact

To understand the significance of the RBI decision, it is necessary to delve deeper into the origins of the incremental cash reserve ratio. The measure was introduced to absorb surplus system liquidity, which had swelled due to various reasons, including hoarding of ₹2,000 notes in banks after the central bank withdrew high-value notes in May.

The removal of ICRR is a clear signal that liquidity is being released, and this new capital can be used for lending. This development is seen as a positive boon for the banking sector and the broader financial market.

Market sentiments and catalysts

Amid mixed global cues, the Nifty index has managed to bounce back to a seven-week high, and is just 172 points away from reaching its all-time high. This resurgence has been attributed to several factors, including the removal of the ICRR, attracting investor interest in specific sectors such as power, defense and shipping, and a rise in railway stocks due to reports of a possible railway connection between the Gulf and Arab countries. Is included.

Additionally, monsoon is gradually improving and India is going to host the G20 summit in the coming days, which is keeping market sentiments upbeat. These factors are expected to contribute to taking the market to all-time highs and potentially reaching the coveted 20,000 mark in the near future.

Expert insight

Leading financial experts share their views on the trajectory of Nifty in view of these developments. "Despite mixed global cues, the index is back to seven-week high (closing basis) and is just 172 points away from its lifetime high," says Siddharth Khemka, head of retail research, Motilal Oswal Financial Services Ltd.

He also adds, "Renewed interest was seen in banking stocks after RBI announced phase-out of ICRR by October 7. Interest in specific sectors like power, defense and shipping is increasing. Media of potential deals Railway shares saw a rise following the reports." Gulf and Arab countries through railways."

Rajesh Palviya, senior vice president, research, Axis Securities, shares this sentiment, expecting the Nifty to hit new highs next week, led by "heavyweights" like HDFC Bank and Reliance.

Winners and losers

Every rise in the market brings with it a reshuffle in the range of winning and losing stocks. The five top Nifty gainers during this remarkable rally were Coal India, NTPC, BPCL, Tata Motors and Larsen & Toubro, all of which gained 2% to 3%. On the contrary, some stocks led losses, including UltraTech Cement, ITC, Wipro, TechM and Tata Steel, which fell between half a per cent and four-five per cent.

Impact of foreign portfolio investors

The astonishing 18% rally in Nifty, which rose from 16,828 on March 20 to 19,820 on September 9, has been largely driven by foreign portfolio investors. These investors have invested $19.1 billion in Indian markets so far in the current financial year (FY24), a significant change from their $23.6 billion disinvestment in the last two financial years.

In conclusion, the recent surge in the Nifty index driven by the RBI's decision to phase out the incremental cash reserve ratio has injected fresh enthusiasm into the Indian financial markets. As Nifty sets its sights on new record highs and the elusive 20,000 mark, market sentiments are positive, with experts and investors eager to see how this exciting journey unfolds.


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