“The market did not applaud, as the government could have done better on the stimulus front. It is important for the government to think outside the box in terms of stimulus, ”said Abhimanyu Sofat, head of research at IIFL Securities.
BSE’s 30-share Sensex snapped an eight-session winning streak and fell 237 points to 43,317 points.
Sitharaman on Thursday announced 12 measures in the next stimulus package aimed at boosting employment, credit and manufacturing in light of the ongoing Covid-19 pandemic. The measures included relief for home buyers and real estate developers, a boost to rural employment and a subsidy for fertilizers, among others. The stimulus will cost the government 2.65 million rupees lakh, or 15 percent of the country’s GDP.
“Clearly, the government is looking to show a holder number. The stark difference between developed markets and Indian markets is the quality of the stimulus. Incremental stimulus is fine, but I think more needs to be done to reactivate the animal spirit in the economy, ”added Sofat.
FM’s announcement comes at a time when a team of economists, including Michael Patra, the Reserve Bank of India (RBI) deputy governor in charge of monetary policy, is of the opinion that Asia’s third-largest economy has likely contracted. for the second consecutive quarter, pushing the country into an unprecedented recession.
Gross domestic product contracted 8.6 percent in the quarter ending in September, the Reserve Bank of India showed in its first published nowcast, which is an estimate based on high-frequency data. The economy had slumped about 24 percent between April and June. “India entered a technical recession in the first half of 2020-21 for the first time in its history,” the authors wrote.
Sofat also noted that with inflation not dropping that much, the Reserve Bank of India’s (RBI) ability to pump liquidity will be limited.
Independent analyst Ambareesh Baliga shared the view.
“Nothing significant was announced. It wasn’t a Diwali bonanza at all like the media has done in recent weeks. They were all extensions of the existing schemes, ”he said.
Some believed that a subdued market reaction was due to the sharp rise of recent times, which has taken into account all the positives, even as the FM package would boost productivity in the economy going forward.
Deven Choksey, Group Managing Director, KR Choksey Investment Managers, opined that the market has already accounted for most of the positives. He said that the stimulus is a good way to incentivize the industry and different sectors.
“However, unlike Western counterparts who are giving money directly to the people, our government is giving money in terms of incentives to its citizens. The economy will be rewarded with higher production and I think it is a good way to reward citizens, ”he said.
Fertilizer and real estate stocks rebound
On the industry front, one of the key announcements was for the real estate sector, as it brought relief to home buyers and developers. The FM said that the difference between the circular rate and the value of the deal increased from 10 percent to 20 percent, on June 20 only for the primary sale of residential units worth up to Rs 2 crore.
The move sent real estate stocks higher, with the BSE Realty index closing 0.83 percent higher.
Anuj Puri, president of Anarock Property Consultant, believes the move will lead to a major boost to real residential demand amid the ongoing festivities.
He explained that for home buyers, it is a clear additional financial benefit to complete existing offers and discounts, and for developers, this measure will help eliminate unsold inventory.
According to Anarock Research, there are around 5.45 lakh of unsold units in the 7 major cities priced up to Rs 1.5 crore, while another 49,290 units are priced at Rs 1.5 crore-2.5 crore .
The government also provided a boost for rural employment as it announced that an additional outlay of Rs 10,000 crore will be provided to Prime Minister Garib Kalyan Rozgar Yojana in the current fiscal year to accelerate rural economic growth.
A fertilizer subsidy of Rs 65,000 was announced for farmers to ensure adequate availability of fertilizer for farmers, and the announcement pushed shares of fertilizer companies higher.
Mangalore Chemicals was up 16.5%, while Deepak Fertilizers and Madras Fertilizers were up 6% and 9%, respectively.
Announcing a series of stimulus announcements, FM Nirmala Sitharaman said there is an estimated increase in fertilizer use of 17.8 percent over actual use of 571 lakh metric tons in fiscal 2020. The increase is due to favorable monsoon and increased area sown.
The announcements also included subsidies to establishments hiring new hires, and would cover contributions to the retirement fund of employees and employers for two years.
Sitharaman also extended the Emergency Credit Line Guarantee Scheme (ELGS 1.0) until March 31, and said it would be fully guaranteed and without collateral.
In an attempt to take on China, it also extended the current five-year PLI (Production Linked Incentives) scheme to ten more sectors, with a total allocation of Rs 1.46 lakh crore.
The PM Awaas Yojana-Urban (PMAY-U) Rs 18,000 crore will be provided for PMAY-U during the 2020-21 budget estimates through an additional allocation, while announcing a grant of Rs 900 crore to the Department of Biotechnology for research of the COVID-19 vaccine.
The stimulus package also addressed infrastructure and debt financing, capital and industrial stimulus, and provided a boost to project exports.
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