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Last Updated : Sep 29, 2020 10:28 AM IST | Source: Moneycontrol.com

Mr Market awaits another round of stimulus from govt; can it lead to a roaring rally?

Sensex and Nifty50 have already rallied by over 50 percent each from the March lows, but a roaring rally post the stimulus measure, if any, is unlikely, say experts.

Representative Image
Representative Image

After tumbling last week, Market gained some strength on September 28 as media reports suggested that the government could be in the process of announcing some stimulus measures for the economy which saw its worst quarter in history as GDP contracted by 23.9 percent.

The Narendra Modi government is just weeks away from announcing another round of stimulus measures aimed at creating jobs and pushing demand, as it looks to turn around India’s ailing economy which saw its steepest ever contraction in April-June.

These plans could involve a bigger direct fiscal outlay compared to the previous two packages - the PM Garib Kalyan package and the Aatmanirbhar Bharat package - and may include a Rs 35,000 crore urban jobs scheme, a massive infrastructure initiative with an emphasis on 20-25 big projects which can be completed this year, and continuing focus on the rural job and farm schemes and free food and cash transfers.

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The Sensex and Nifty50 have already rallied by over 50 percent each from the March lows, but a roaring rally post the stimulus measure, if any, is unlikely – say experts.

“The stimulus is expected after a steepest ever decline in GDP contraction in the Apr-Jun period, but the positive rub-off effect of the stimulus on markets would not last for more than a week,” Arjun Yash Mahajan, Head – Institutional Business at Reliance Securities told Moneycontrol.

“The US elections, scheduled for November 3, 2020, will keep global markets volatile to say the least. Add to this, Covid-19 cases, globally and in India, show no sign of peaking / slowing down and with increasing news and expectations of mini lockdowns in various states/cities,” he said.

India saw perhaps the biggest fall in GDP in its independent history, as April-June GDP contracted 23.9 percent year-on-year. Private consumer spending, the bedrock that contributes more than half the Indian economy, got chipped by 27 percent.

The voices for a package are getting louder from inside the government as well. The Modi government recognises that the time for the center to spend on fiscal measures is now when the private sector investment is slow, Chief Economic Advisor Krishnamurthy Subramanian told Moneycontrol in an exclusive interview.

Also Read: Interview | Government recognises this is time for fiscal measures: CEA Krishnamurthy Subramanian

The bewildering economy that witnessed a record contraction in the first quarter of FY21 will certainly require fiscal measures to address challenges posed by the pandemic, say experts.

“The fiscal package from the government to address the demand-side economics coupled with measures to boost the business activities will help the market to uplift the sentiment,” Dinesh Rohira - Founder, CEO - 5nance.com told Moneycontrol.

“Unlike the previous package which failed to cheer the market participant, the fresh stimulus will require detailed analysis on spending which will be focused more on boosting consumption and addressing employment opportunities,” he said.

What could be expected?

The centre’s focus on the rural economy under the previous two COVID economic packages, is set to continue as well. The emphasis could be on job schemes, direct cash transfer, MSME package, Tax Holidays, much-awaited scrappage policy as well as support to public sector banks.

Expert: Arjun Yash Mahajan, Head – Institutional Business at Reliance Securities

Scrapage Policy:

Scrapage policy to spur the auto demand which in turn will spur economic growth

Taxation Holidays:

Taxation holidays for the industrial and MNC’s to create large manufacturing hubs, attract FDI and drive exports to other parts of the world.

Job Schemes:

Urban jobs scheme and massive infrastructure push to create job creation in rural and urban areas.

Expert: Dinesh Rohira - Founder, CEO - 5nance.com

Support to MSME:

The government should continue to support MSME impacted by pandemic along with sectors that are under pressure through a dedicated fiscal package with liquidity support, lower lending cost, and window to restructure financial obligations.

Direct Cash Transfer:

The direct cash transfer to impacted rural populations coupled with structural policies to address the challenges of the migrant worker should be given priority.

Recapitalization program for public banks:

The package should also highlight the means to mitigate the asset quality woes along with the central bank to reinforce confidence in the financial ecosystem and any recapitalization program for public banks in coming years.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Sep 29, 2020 10:28 am
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