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'FM measures fail to cheer market as they focus more on supply challenges than reviving demand'

Economy-facing companies would be the choicest sectors for investment but invest clearly with a 3-year view.

May 15, 2020 / 12:01 PM IST

Tejas Khoday

India will enter lockdown 4.0 mid-May with a host of economic relief announcements by the government inspired by a Pro-Poor agenda. Though the relief measures aimed at reviving economic activity through the ease of credit availing facilities for MSMEs, one of the largest contributors to the GDP, the sector was quite disappointed at the lack of immediate financial support which is what could have helped them recover in the short term.

Even as the stock markets rallied towards a positive outcome post-Prime Minister Narendra Modi's address on May 13, the announcement by Finance Minister did not impress equity markets as most of the measures announced were focused more on addressing supply challenges than reviving demand. While the Sensex dropped by 800 plus points, Nifty ended below the 9150-mark on May 14.

Even as the current emotion and reactions are mixed, we must realise that India is no different than other nations, as it battles the pandemic on one hand and administering policies on the other to stave off a serious economic crisis.

Comparatively, India is in a much better situation, with around $500 billion of forex reserves, benign inflation (barring food inflation which is coming down), acceptable fiscal deficit levels, higher agri productivity in the current year and most important of all, the tailwind of low crude oil prices.


Unlike large economies that are 'distributing' money like never before, Indian government under the leadership of Prime Minister Narendra Modi has adopted a timely and measured approach to enhance the effectiveness of policy announcements. However, implementation efficacy will be closely watched via ground level results.

The Prime Minister's recent address highlighted the focus, not just on recovery from the current crisis, but to use it as an opportunity to be self-reliant and to strengthen the economy. A Rs 20 lakh crore economic package by a combination of monetary and fiscal policies is not trivial by any means. It represents approximately 10 percent of our Gross Domestic Product (Rs 204 lakh crore expected for FY20) and is quite large compared to the Rs 30 lakh crore of expenditure planned in the Union Budget 2020-21.

Monetary policy support by RBI has provided around Rs 5.7 lakh crore as liquidity infusion through various options including a 75-basis point cut and a 3-month moratorium. However, banks haven't expressed sufficient confidence in lending to businesses and have parked around Rs 8.1 lakh crore with RBI.

Earlier, Finance Minister Nirmala Sitharaman announced a fiscal stimulus of Rs 1.7 lakh crore or 0.9 percent of GDP. On May 13, honourable FM announced a second package to the tune of Rs 6 lakh crore, consisting largely of liquidity driven measures. Prominent among them is Rs 3 lakh crore of collateral-free guaranteed loans for healthy MSMEs and subordinate debt of Rs 20,000 crore for distressed enterprises.

A 100 percent credit guarantee to banks and NBFCs by the government on the principal and interest amount of the loans is a high confidence boosting measure and will help many small firms.

In addition, a Rs 90,000-crore liquidity infusion for power distribution companies (discoms) by Power Finance Corporation and Rural Electrification Corporation would provide sufficient relief, considering the fact that discoms owe a similar amount to power generators. The Special Liquidity Scheme of Rs 30,000 crore and Rs 45,000 crore Partial Credit Guarantee Scheme can support smaller NBFCs/HFCs, though understanding the fine-print & implementation will be key factors.

A case for setting up of a 'Bad Bank' has been made, time and again, and if implemented, would address the NPA issues of many financial institutions.

These are some of the supply-side measures announced to revive the old economy – power, infrastructure, and manufacturing – sectors. As Finance Minister vowed, many more measures in multiple phases are in the offing as the government enforces its focus to make India self-reliant and be local. Make in India program is expected to gain focus, with the resumption of credit flow to various segments of the distressed economy.

It is equally important for the government to bring about demand-side policies. The government needs to put cash in the hands of consumers, through additional direct benefit transfer for the lower strata of society and relief in taxes for the consumers at large. The new guidelines expected on May 18 could see relief to many more containment zones in the opening up of industries/manufacturing units.

The renewed enthusiasm, prompted by our Prime Minister's speech and being detailed by our Finance Minister in phases, is bringing back investor interest across sectors. Power sector related companies in the manufacturing, generation and distribution segments, including PSUs are back in the reckoning. Infrastructure is expected to get a leg up post relaxation of restrictions, aiding in employment too.

Healthcare still remains a prime focus area, especially pharma companies, which are racing to supply generic and specialized drugs across geographies. Discretionary consumption would take a back seat, while consumer durables will be vying for a wallet share owing to the work from home (WFH) concept. The economy facing companies would be the choicest sectors for investment but invest clearly with a 3-year view.

We have embarked on a journey, a journey to not simply recover from this crisis, but to be self-reliant and share an inclusive growth of the economy aided by significant reforms in Land, Labour and Law. The 5 pillars outlined by PM - Economy with potential for quantum jump, Infrastructure, Tech-driven system, Demography and Intelligence-driven supply system – should get us there, maybe a little slower but nevertheless for sure. Time to bet on the resurgent India!

The author is Co-Founder & CEO at FYERS.

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
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first published: May 15, 2020 12:01 pm
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