The MPC continues to provide forward rate guidance as an effective tool to ensure monetary transmission and enable stability to bond yields in an environment of higher fiscal borrowing. This was broadly in line with market expectations, given that RBI has repetitively emphasized the importance of reviving growth while keeping inflation within the targeted band.
In line with global equities, Indian equities also saw a sharp rally in November. Domestically, the focus was on 2QFY21 earnings and a gradual reopening of the economy. COVID-19 cases in India continue to decline from their peak in mid-September. Q2FY21 earnings surprised positively led by Financials and Resources companies.
November continued to see a rally in yields across various segments, with the rally being most pronounced at the shorter end of the curve on the back of a huge liquidity surplus in the system and the continued surge of inflows into various short to medium categories of mutual funds.
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