BackSitharaman’s liquidity measures a positive for market but worries remain
Equity markets are expected to rise on the measures but uncertainties around mechanisms to fund the relief package stay which may keep investors on tenterhooksAnalysts say details of the package and actual execution on grounds is far from certain, but the broader intent is positive
PremiumFinance minister Nirmala Sitharaman’s slew of measures to inject liquidity and improve credit flow is likely to cheer markets on Thursday but analysts feel that the real impact of the policies will depend on their implementation. Equity markets are expected to rise on the measures but uncertainties around mechanisms to fund the relief package stay which may keep investors on tenterhooks.
According to analysts the liquidity measures it will not add up to fiscal implications of government. “A notable feature of the package is that it will not strain the government finances beyond a point since most of the funding is by way of credit guarantees by govt. In brief a fine balancing act," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said.
The measures are likely to revive the vulnerable MSME sector which are hit hardest by the lockdown following covid-19 outbreak.
“What the FM has announced will not disappoint the markets. The markets have already moved in anticipation and expect equities to maintain upmove. The package announced by FM appears to be a smart policy, centered around liquidity and does not add up to huge fiscal implications for the government," Amar Ambani, Senior President and Institutional Research Head, Yes Securities said.
The measures are expected to instill confidence in banks, financial institutions and investors in lending. Markets would now await for the details of the balance package which would be announced subsequently over next few days. The critical factor which markets are looking out will be whether the package is able to revive the demand and any structural reforms are announced.
Joseph Thomas, Head of Research - Emkay Wealth Management said, “The measures are more of supply side and there is very little that is on the demand side. Probably, the future announcements may contain a more balanced coverage of demand and supply side factors. Demand side factors generally tend to work faster as it is oriented towards the consuming unit directly."
Gaurav Dua, Sr VP, Head Capital Market Strategy & Investments, Sharekhan by BNP Paribas said that the equity markets are expected to appreciate the measures but not see a big surge due to two key uncertainties including mechanism to fund the relief package, and quantum of immediate outflow from the government coffers.
However, Dhiraj Relli, MD & CEO, HDFC Securities feel that the stock markets may be disappointed because the immediate spend out of the big fiscal stimulus is relatively small and hence there could be doubts on whether economic growth will revive soon and in proportion to the large number of the stimulus. “On the other hand, sectors like Banks/NBFC, power generating companies and sectors that have high linkages with MSMEs could see an uptick in their valuation, though partial impact was already visible on Wednesday. Worry about rating downgrade could get postponed and we may have to see the next set of announcements by the FM to get a better handle on this," he said.
On Wednesday, markets rally was capped at 2% as other tranches of the packages are awaited. The BSE Sensex ended at 32,008.61, up 637.49 points or 2.03% while the 50-share index Nifty was at 9,383.55, up 187 or 2.03%. The size of the economic package announced by Prime Minister Narendra Modi on late Tuesday is significantly higher than street expectations. The economic package of ₹20 trillion or 10% of India’s gross domestic product (GDP), includes the fiscal and monetary support that have already been provided thus far.
Analysts said that details of the package and actual execution on grounds is far from certain, but the broader intent is positive.
“The announcements support growth, which is positive for the equity markets, in our view. The near-term earnings outlook remains weak, as the spread of covid-19 will continue to impact economic activity. Cases in India continue to rise with a daily growth rate of 6% over past week," said Nomura.
The government said that strong support from the government could help allay risk of significant dislocations in industries and financial system. This supports valuation multiples as risk to medium-term growth abates, in our view. At the margin the announcements are positive for domestic cyclicals and expect financials to be the biggest beneficiary with some allay in asset quality concerns and better medium-term growth prospects, said Nomura.
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