This December has been the worst for Sensex in 4 years
Investors are wary of fiscal slippage because of government's stimulus package ahead of 2019 Lok Sabha elections
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Mumbai: The Indian stock markets continued to be under selling pressure on Monday, making it the worst December for Indian equities in the last four years. Domestic investors were cautious about the possibilities of fiscal slippage as a result of the government’s stimulus package ahead of the general elections, as uncertainty around global economies remained. This is the worst performance of the Sensex in December since 2015, with the index falling 2% in this month so far.
The Sensex had jumped 2.74% in December 2017. However, despite the weak performance, Indian equities have slipped less than other world markets. MSCI’s world equity index, which tracks shares in 47 countries, has slipped 10.11% in December so far. In the year so far, the Sensex has gained 4.15%, while MSCI World slipped 12.76%.
Globally, investors remained on the edge over the turmoil in Washington after the worst week for equities in almost a decade. US treasury secretary Steven Mnuchin called top executives from the six largest US banks to discuss liquidity. He also attempted to assure the financial markets that Federal Reserve chairman Jerome Powell will not be ousted from the central bank following an earlier report that said that US President Donald Trump has repeatedly discussed removing him.
According to Hemang Jani, head, advisory, Sharekhan by BNP Paribas, there were concerns over a partial US government shutdown, besides worries over Trump’s relationship with Powell. Trade tensions and global economic slowdown will also continue to worry investors.
“Back home, last week, the government made major policy decision such as liquidity infusion in PSU banks and GST rate cut on 23 items. As we enter F&O expiry week, movement in crude oil prices and currency, any developments in ongoing winter session of Parliament will influence the trend of the market."
The Sensex ended the day on Monday at 35,470.15, down 271.92 points, or 0.76%, while the 50-share index Nifty closed at 10,663.50, down 90.50points, or 0.84%.
Analysts said that stimulus measures may weaken the economy, while escalating trade tensions between the US and China, tightening of global financial conditions and slowing global demand may pose some downside risks to the domestic economy.
Last week, the GST Council had pruned tax rates on 23 items, including air conditioners, mobile phones, dishwashers, television sets, power banks, digital cameras, and video camera recorders. The reduction is estimated to have an impact of ₹ 5,500 crore on government revenues.
Economists see it as a populist measure to appease voters, but which could hurt the fiscal health of the country.
Capital Economics Ltd, a macroeconomic research firm, said that the concept of a streamlined GST will be beneficial over the long run, but the statement appears timed to appease voters, given that many items were currently taxed at the 28% slab. “It now looks virtually impossible for the government to meet its central fiscal deficit target of 3.3% of GDP in FY18-19. The combined fiscal deficit is also on course to widen sharply. This will help support growth in the near term, but it would mean that a sharper fiscal adjustment is likely in FY19-20, which will cause the economy to weaken substantially by the end of the next calendar year," said Capital Economics Ltd in a note.
Farm loan waivers and other politically-driven measures may impact the fiscal deficit, according to Sharekhan by BNP Paribas.
Recently, Madhya Pradesh, Chhattisgarh and Assam have announced farm loan waivers, adding to the fears of an all-India farm loan waiver ahead of the general elections.
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