Liquidity efforts good for market but issues remain
On Wednesday, the market rally was capped at 2%, as investors waited for other tranches of the package.
The Union government’s stimulus package to inject liquidity and improve credit flow is likely to cheer markets on Thursday, even as market analysts feel the impact of the policies will depend on their implementation. Stocks are expected to rise, but uncertainties around mechanisms to fund the package may keep investors on tenterhooks.
“A notable feature of the package is that it will not strain government finances beyond a point, since most of the funding is by way of credit guarantees by government. In brief, a fine balancing act,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
The measures are likely to revive the vulnerable MSME sector which is the worst hit by the lockdown following Covid-19 outbreak.
“What the FM (finance minister) has announced will not disappoint the markets. The markets have already moved in anticipation and expect equities to maintain upmove. The package announced by FM appears to be a smart policy, centered around liquidity and does not add up to huge fiscal implications for the government,” Amar Ambani, senior president and institutional research head, Yes Securities, said.
The measures are expected to instil confidence in banks, financial institutions and investors. Markets will now await the details to be announced over next few days. Investors will want to know if the package can revive demand, and check for any structural reforms on the cards.
Joseph Thomas, head of research, Emkay Wealth Management, said, “The measures are more of supply side and there is very little that is on the demand side. Probably, the future announcements may contain a more balanced coverage of demand- and supply-side factors. Demand side factors generally tend to work faster as it is oriented towards the consuming unit directly.”
Gaurav Dua, senior vice-president and head, capital market strategy and investments, Sharekhan by BNP Paribas, said equity markets are expected to appreciate the measures but will not see a big surge due to two key uncertainties—the mechanism to fund the relief package, and the quantum of immediate outflow from the government coffers.
However, Dhiraj Relli, managing director and CEO, HDFC Securities, said stock markets may be disappointed because the immediate spending is relatively small and hence, there could be doubts on whether economic growth will revive soon and in proportion to the large size of the stimulus.
The size of the economic package announced by Prime Minister Narendra Modi was significantly higher than Street expectations. On Wednesday, the market rally was capped at 2%, as investors waited for other tranches of the package. The BSE Sensex ended at 32,008.61, up 637.49 points or 2.03% while the 50-share index Nifty was at 9,383.55, up 187 or 2.03%.