The economy will require a massive fiscal stimulus after the 45-day lockdown. The stimulus announced so far is too low (0.9 percent of the GDP) and largely addresses lower strata of the economy for daily needs, Hemang Kapasi, Portfolio Manager – Equity Investment Products, Sanctum Wealth Management Private Limited, said in an interview with Moneycontrol’s Kshitij Anand. Edited excerpts:
Q. What are your views on the RBI bazooka 2.0? What kind of impact will it have on the markets and what are the sectors that will benefit?
A) The measures announced by RBI were an extension to fine-tuning of previous measures announced.
The steps taken are in the right direction and these measures were directed specifically to certain sectors of the economy like NBFCs, MFIs, HFCs, MSMEs, and banks which will have indirect barring on the rest of the sectors.
The RBI reduced the reverse repo rate by another 25 bps to 3.75 percent from 4 percent earlier. This dis-incentivises banks from parking surplus liquidity with RBI and nudges them to lend more.
The key focus was on injecting liquidity to NBFCs, MFIs, HFCs, and MSMEs through Rs 0.5 trillion TLTRO scheme based on their initial assessment. As companies in these sectors were finding it tough to raise funding in the current market environment, these measures would provide much-needed liquidity to this segment.
Additionally, RBI announced a special refinance facilities worth Rs 0.5 trillion for NABARD, SIDBI, and NHB. These institutions play an important role in meeting long term funding requirements of agriculture, rural sector (including rural-focused NBFC, HFC, and MFI), small scale industries.
The RBI has also relaxed NPA recognition and liquidity requirement norms but at the same time has tightened prudential and governance norms by asking banks to increase provisioning for accounts where a moratorium has been given and disallowing dividend distribution. These measures are targeted to bring more liquidity easing. Once lockdown opens, measures to improve demand will become the need of the hour.
Q) Do you think the market awaits more fiscal measures that could support the economy?
A)The economy will require a massive fiscal stimulus after the 45-day lockdown. The stimulus announced so far is too low (0.9 percent of the GDP) and largely addresses lower strata of the economy for daily needs.
Government need to focus on preventing job losses in vulnerable sectors; prevent large scale bankruptcy at MSME & SME as well as other hard-hit sectors; and lastly, make provision for migrant/casual workers to return to work.
The government will have to address the above as well as will have to take measures to stimulate demand.
Q) D-Street closed flat but there was a lot of volatility in the market. Do you think the momentum is likely to sustain?
A) After a steep fall in March, markets have bounced back with a rebound in global indices and on hopes of stimulus package by the government.
It is difficult to ascertain if the momentum will sustain. Markets shall function based on measures announced by the government, and once the results start to come in, it will provide insights to the extent of damage individual businesses will have to deal with.
Q) What is your call on Nifty Bank in light of the recent measures announced?
A) The measures announced by RBI on NPA classification and recognition are welcomed. However, the provisions for this relaxation will have to be provided. Hence, higher provisioning and lower credit growth in these times would be the norm moving forward. This will make the financial lending sector's job difficult.
Having said that, we prefer non-banking financials like Insurance and Asset management businesses which are expected to do better due to structural factors of low penetration and increasing awareness post this crisis
Q) Small & midcaps outperformed in the week gone by – why is that?
A) It is more of a bounceback along with the broader markets as we believe that small and midcap companies might find it much difficult in navigating this crisis than their larger peers. We would be very careful and selective in picking names in mid and smallcap space at this juncture
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