Investors expect more relief measures for corporate India as well as small entrepreneurs and startups
BSE Sensex ends at 29,946.77, up 1,410.99 points or 4.94%, while Nifty at 8,641.45, up 323.60 points or 3.89%
Indian stocks gained for the third straight day as government announced measures to address the slump during the 21-day lockdown boosted sentiments. The BSE Sensex ended at 29,946.77, up 1,410.99 points or 4.94%, while the Nifty was at 8,641.45, up 323.60 points or 3.89% on Thursday.
Most Asian region markets were under pressure on Thursday as investors awaited the release of the initial jobless claims data by the US in the evening.
The Indian government announced a ₹1.7 trillion package, amounting to about 0.8% of gross domestic product (GDP), to help the lower income group during the 21-day nationwide lockdown.
However, investors are still waiting for more relief measures for corporate India as well as small entrepreneurs and startups. In expectation of the government’s stimulus package, benchmark indices have rallied 13-15% in last three trading sessions.
These gains are not enough to recover the massive losses stock markets have incurred in March, but both the Sensex and Nifty have risen 16.8% and 15.05% from the lows touched this month.
According to Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, the markets have cheered this fiscal package and now expect relief measures for corporates, banks, SMEs, and startups. “It would continue to be highly volatile and would track global markets along with the trend in coronavirus cases globally and locally," he said.
“We will know if the steps taken by the government results in controlling the spread of the virus in the next two to three weeks. While investor anxiety in such times is natural, investors should not panic at this stage, having lost anywhere from 30 to 50% of the values in the last few weeks even if they continue to see panic all around. History suggests that markets generally tend to rebound very quickly once the situation comes under control. In our view markets will bottom out much before the intensity of virus dissipates," said a fund manager at Principal Mutual Fund.
However, analysts remained concerned that the pandemic in India and the consequent lockdown for 21 days pose a material risk to India’s economic outlook. The adverse effects that will follow can dwarf the gains from the sharp drop in crude oil prices, and the anticipated monetary and fiscal stimuli.
As per Nomura, direct economic hit due to the lockdown will be 4.5% of GDP (plus there will be indirect effects) and as total size of the fiscal package is relatively small and reflects the government’s fiscal constraints. It believes the government may temporarily suspend the Fiscal Responsibility and Budget Management legislation. “Weak growth (low tax collections) and the stimulus package will result in the central government’s fiscal deficit rising to 5% of GDP in FY21 versus the 3.5% budget target," it said. Nomura sees government fiscal deficit rising to 8.5-9.0% of GDP.
However, UBS thinks that India’s risk-reward appears attractive for India, but only if we presume the negative impact of Covid-19 is short-lived. The brokerage firm has revised Nifty target at 10,000 for March 2021, with upside and downside scenarios of 11,500 and 6,000, respectively.
Meanwhile, the rupee has rebounded following strength in equities. The Indian rupee ended 75.15 against the dollar, appreciating 1.26% from the previous close.