Sensex, Nifty jump 2% as RBI eases mutual funds liquidity worriesSensex, Nifty jump 2% as RBI eases mutual funds liquidity worries
The Bombay Stock Exchange building is seen in Mumbai

By Chris Thomas

BENGALURU (Reuters) – Indian shares rose more than 2% on Monday, powered by gains in banking and asset management company stocks after the central bank launched a special liquidity facility for mutual funds to ease the pressure due to the coronovirus pandemic.

The Nifty advanced 2.21% to 9,356.65 by 0504 GMT, while the benchmark Sensex gained 2.26% to 32,034.22.

The Reserve Bank of India said it would open a special liquidity facility for mutual funds of 500 billion rupees ($6.56 billion) to ease liquidity strain, reassuring investors after a prominent fund house last week said it would wind down six credit funds due to a lack of liquidity.

“After Franklin Templeton, there was a fear that people will panic and withdraw money from other funds, so RBI is helping mutual funds with extra liquidity. It is trying to avoid contagion,” said Gaurav Dua, head of capital market strategy at Sharekhan.

“This is helping stocks of mutual funds and banks with stakes in asset management companies.”

The Nifty Banking Index extended gains to rise as much as 2.9% after the announcement, while the Nifty Private Bank Index jumped 3.1%.

Private-sector lender Kotak Mahindra Bank Ltd was the biggest mover, rising as much as 6.9% to a near four-week high.

Asset manager Nippon Life India Asset Management Ltd soared 12.7%, while HDFC Asset Management Company Ltd jumped 7.9%.

Domestic markets have also been buoyed by expectations of more stimulus from the Indian government after an initial round worth about $22 billion, which included provision of free cooking gas cylinders, grains and some cash to the country’s poor.

Even as the number of cases rose, India allowed shops in residential areas to reopen from Saturday, more than a month after the country went into an extended lockdown to curb the spread of the virus. Total cases rose to 27,892 as on Monday morning, including 872 deaths.

Investor sentiment was also helped by gains in broader Asian markets as meetings of major central banks this week raised hopes of more measures to counter the fallout from the pandemic.

The Bank of Japan on Monday expanded monetary stimulus for the second straight month to ease corporate funding strains and finance huge government spending, while the Federal Reserve and the European Central Bank are due to meet later in the week.

In Mumbai trading, private-sector lender IndusInd Bank Ltd rose as much as 6.3% ahead of its quarterly results due later in the day, while state-owned Bank of Baroda Ltd rose as much as 3.1% after approving a fund raise of up to 135 billion rupees ($1.77 billion).

IT firm Mindtree Ltd surged nearly 10% after reporting a better-than-expected profit for the March quarter.

($1 = 76.1830 rupees)

(Reporting by Chris Thomas in Bengaluru; Editing by Sriraj Kalluvila)