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The BSE Sensex ended at 40,593.80, up 84.31 points or 0.21%. Mint
The BSE Sensex ended at 40,593.80, up 84.31 points or 0.21%. Mint

Markets snub govt sops as short-sighted

  • Analysts say the package lacks commitment to generate sustainable growth

Market investors were not very enthused by the government’s package meant to lift consumer demand and infrastructure spending. The Nifty hit the 12,000- point mark during the day, but overall markets were marginally higher amid volatile trade on Monday. The 50-share index ended at 11,930.95, up 16.75 points or 0.14%. The BSE Sensex ended at 40,593.80, up 84.31 points or 0.21%.

Finance minister Nirmala Sitharaman on Monday announced a set of measures worth 9,675 crore to boost consumer demand by front-loading some expenditure.

Sitharaman also said an additional budget of 25,000 crore will be provided to develop roads, defence, water supply, urban development and domestically produced capital equipment.

However, analysts said the package lacks commitment to generate sustainable growth.

“The government’s effort to stimulate demand by offering advances and cash voucher schemes looks short-term in nature and lacks commitment to have a sustainable growth. This may lead to a kind of destocking-led demand improvement ahead of the festivals or fiscal end. It may not necessarily result in a sustainable recovery," said Arjun Yash Mahajan, head, institutional business, Reliance Securities.

The incentive to government employees to spend during the festive season may not add much to the demand as the amount being spent is low, said Rusmik Oza, executive vice-president and head of fundamental research, PCG, Kotak Securities Ltd.

“The stimulus is not big but can have a benign effect on demand," said V.K. Vijayakumar, chief investment strategist, Geojit Financial Services.

The government estimates that the potential spending boost could total 73,000 crore, which could rise to 1 trillion if the private sector also participates, according to Radhika Rao, economist, DBS Group Research.

“The markets had been anticipating further fiscal support from the government after the first two packages were a mix of subsistence support for economically vulnerable parts of the society during the strict lockdown, alongside medium-term reform measures. Today’s announcements are likely a part of the post-lockdown fiscal push to revive the economy. The government is seeking to time this boost to coincide with the upcoming festive period and spur overall consumption while also being spending-lite so as not to put additional burden on the exchequer," she added.

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