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Sensex tanks over 1,100 pts; why have stimulus, rate cuts failed to lift sentiment?

With stimulus measures announced, the focus is back on the coronavirus outbreak and its impact on the economy.

March 31, 2020 / 06:17 PM IST

After Finance Minister Nirmala Sitharaman announced a string of fiscal measures to alleviate the pain caused by the coronavirus outbreak, the Reserve Bank of India, too, stepped in March 27 to ensure the stability of the financial system.

Announcing a massive 75 bps rate cut and liquidity measures, the central bank said it was keeping watch on the developments and would step in when required.

RBI governor Shaktikanta Das was reiterating what Sitharaman had said-- more measures can be announced if needed.

Why is the market falling?

While the measures were welcomed by experts and brokerages they seem to have done little to boost market sentiment.


The Sensex plunged over 1,100 points in intraday trade on March 30, while the Nifty slipped to 8,333.

One of the primary reasons for the sombre mood could be that the market is now focussing on the reason the government and the RBI had to intervene—the coronavirus outbreak and its economic cost. As cases inch up in India and across the globe, only a positive development will bring relief.

"Now since the two expected events are out of the way, focus comes back to the spread of the virus and its damage on the already reeling economy," said Vinod Nair, Head of Research at Geojit Financial Services.

Nair said that the stimulus package announced by the government and RBI would have limited effect until the actual impact of the virus was known, both economically and the number of infections.

"Despite the relief rally seen last week, investors will need to be conservative in their investments and still focus only on accumulating quality stocks and not go all in," he said.

Another reason experts and brokerages highlight is that the economy needs more such measures and the market is expecting them soon.

"While the government and the RBI have announced stimulus packages, further measures are expected to tide over the crisis. The extent of lockdown, pace of return to normalcy and further fiscal responses remain key monitorables," brokerage firm HDFC Securities said.

The fiscal measures have also disappointed some brokerages, who say they are not enough to address the stress.

"The fiscal package has been somewhat underwhelming and has effectively provided fiscal relief of just about 0.5 percent-0.6 percent of GDP. This is significantly lower against relief packages announced by various countries (ranging from 2 percent-16 percent of GDP) and we believe that FM will announce further measures targeted at small businesses, organised workers, highly impacted sectors, etc.," said HDFC Securities.

What should be done?

The most important thing is to ensure the operationalisation and effectiveness of the measures announced by the RBI’s monetary policy committee (MPC).

"While the measures to infuse liquidity, including targeted LTROs (long- term repo operations), will support the bond market, the operationalisation and effectiveness of MPC measures are the keys to success," said brokerage firm CLSA.

BofA Securities expects more measures from RBI and is of the view that the central bank is among the few central banks that still have sufficient arsenal to fight for growth.

"We expect MPC to cut 25 bps each in June and October. The RBI could continue to intervene up to $30 billion to stabilise the rupee," BofA said.

Nomura believes demand risks persist and relief announced is temporary, which may have to be extended.

The government focussed on the rural sector and people from the lower strata of society while announcing measures, while the RBI was focussed on financial lines that were expected and logical.

Experts now expect a package for airlines, hospitality, tourism sectors and export segments, worst hit by a virus outbreak and the lockdown brought by it.

"In terms of sectors, the government should provide stimulus package for the most impacted ones like hotels & hospitality, tourism, aviation, automobile, as these are major employment-contributing sectors for the Indian economy and these are some of the worst affected sectors due to travel bans, social distancing, and suspension of business activities," said Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor.

The market may remain volatile amid uncertainty and the extent of lockdown, pace of return to normalcy and further fiscal responses remain key monitorables.

Till then, stick to quality names. As per HDFC Securities, IT, consumer staples, pharma and chemicals will ride out the turbulence with low earnings hit and should form key portfolio weights. Telecom will also be largely insulated and may actually benefit owing to higher demand in the near term.

Disclaimer: The views and investment tips expressed by investment experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Mar 30, 2020 01:43 pm
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