Q4 results till date have been below the expectation which could not be a big negative surprise for the market.
The market was trading positively in the last two to three weeks expecting a fiscal stimulus and reopening of the economy. And, when the final fiscal announcement came, the market gave a positive reaction only for a day before and after the event.
The sustenance was weak because the actual fiscal stimulus in terms of direct government spending to bring growth in the economy was low.
The actual fiscal impact is expected to be less than 0.25 percent in package 2 (investment in equity & debt, reduction in TDS & TCS), in addition to the 0.8 percent provided in Package 1.
The intention of the stimulus is to provide sustenance, avoid rapid bankruptcy and job losses when the economy is likely to be slow, given the social-distancing norm.
Having said that, even though fiscal cost is low, the contingency provisioning of the government will increase immensely given the guarantee given to loan of MSME & NBFCs (Rs 3.5 lakh crore) with moratorium of four years.
A very high part of the stimulus includes the monetary liquidity provided by RBI in the financial market, which is estimated to be around 6 to 7 percent of the GDP from the total 10 percent of the GDP package. The government is trying to do its part but weak financial position is not making it aggressive.
Overall, the package is decent, since it provides hope to the unprivileged, farmers, rural economy, urban poor and MSMEs to sustain during this difficult time by providing cash benefits, loans and opportunities of minimum income and business.
But it may not be good enough to boost growth, direct spending by government could have been more helpful.
During the week, the global market was weak. As a result, the domestic market came in line with the performance of global market.
We have seen similar and even bigger sizes of stimulus in the rest of the world, which was taken positively initially in expectation of reopening the economy and availability of credit. But look at the confusion in the market today, which is getting concerned about when the economy will be opened.
Market feels that the economy will not be able to work at the pre-COVID level soon and social distancing is going to stay till the risk of COVID is eradicated. It also foresees risk of bankruptcy, company & sector wise, if the issue continues for a long time.
Q4 results have been below expectations which should not a big surprise for the market. But the commentary, outlook and financial guidance is bleak, adding to uncertainty in the market.
Few sectors are looking stable. These include FMCG, agri-oriented business, pharma and chemicals.
Our analyst has downgraded the topline and bottomline to an extent of 10 to 20 percent, which may be fairly factored in the market. But the risk of accuracy is higher, given the evolving situation, especially for the next two quarters, not overlooking the possibility of whether downside in the future, as per the development.
In such a scenario, Q1 is expected to be a washout for many segments of the businesses.
The author is Head of Research at Geojit Financial Services.
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