RBI’s transfer of Rs 1.76 lakh crore to the government

Too much noise whether it is right or wrong - what matters is what lies ahead !

On Monday (August 26, 2019), RBI’s panel decided to transfer Rs 1.76 lakh crore of surplus funds to the government – comprising Rs 1.23 lakhs of RBI’s yearly net surplus and balance Rs 0.53 lakh crore from the accumulated surplus in its Contingency Fund (CF).

I don’t want to comment whether it is right or wrong as it is too complicated a subject – times are extraordinary and economic revival needs action for which government require funds.

Since the announcement, I have been trying to analyse the decision in terms of its implications for me as a stock market investor. Following are my two conclusions from the move –

  1. It seems critical from RBI’s balance sheet perspective to not let rupee get strengthened significantly. Hence, there is a higher probability of Indian rupee getting weak from here over the short to medium term – positive for IT, pharma and exports driven businesses.
  2. Under the scenario of continued demand of RBI’s surplus by government in future years, questions are going to come up even on the level of revaluation reserves (CGRA) that should be maintained at RBI – which might be looked at cautiously by economists and investors.

I am sure you will find the above two conclusions related !

I am not intentionally getting into too many details as the subject is highly technical and subjective. In case of any doubt/ confusion, kindly feel free to comment.

Disclaimer: The above is my personal opinion and not any recommendation to the reader.

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About the author

Nitin Jain

A finance professional with around 20 years of investing experience in Indian markets both on buy and sell side, equity and debt, private and public with some of the best organizations globally including Goldman Sachs, ICICI Group, ICRA and others. He is a All India Silver Medalist CA by qualification.

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