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Analysts said the package had more to do with solving supply-side problems than with demand-side problems. They don’t expect the Rs 6 lakh crore announcements to give the economy a boost in the short term.
At 9:30 a.m., the BSE Sensex had dropped more than 600 points to 31,400. The NSE Nifty50 barometer was testing the 9,200 level.
The FM announced unsecured loans of Rs 3 lakh crore and capital infusion of Rs 50,000 crore in MSMEs; Liquidity infusion of Rs 90,000 crore in discoms and relief of Rs 50,000 crore in TDS and TCS, among others.
But Dalal Street did not seem impressed. This is why: –
Stretches, without full stimulus
While the market anticipated a full stimulus of Rs 20 lakh crore, the FM said the announcements will be made in installments in the coming days. The shares had recovered in anticipation of a fiscal bonanza. While Wednesday’s announcements aimed to support MSMEs and NBFCs, the economic package cannot be called a bonanza, “said Phillip Capital, adding that he would wait for the full details of the economic package to form any opinion.
Dhiraj Relli, MD and CEO of HDFC Securities, said the market was a little disappointed that the immediate spending of the large fiscal stimulus is relatively small and there could be questions about whether economic growth will revive soon and in proportion to the large amount of .
Unlikely short-term relief
Analysts noted that most of the announcements made were in the form of credit guarantees. Emkay Global said the real fiscal impact should be Rs 24,000 crore, or 0.12 percent of GDP in fiscal year 21. “We do not expect the measures to materially change our outlook for growth in the short term as the multiplier effects should remain modest, “Nomura said.
The broker expects real GDP growth in 2020 to drop to 5% yoy. India’s GDP is expected to expand 1.5 percent in the March quarter, decrease 14.5 percent in the June quarter, decrease 6 percent in the September quarter and another 1.5 percent in the December quarter.
Financing details are missing
The FM declined to disclose the financing details of the package until all announcements are made. “He said that part of the funds will come from additional loans of Rs 4.2 lakh crore. Announcements detailing the use of balance funds of Rs 7.5 lakh crore will be made in the coming days,” said Phillip Capital.
Relief Amount
Motilal Oswal Securities said that while the special liquidity window for NBFCs and the partial credit guarantee (PCG) for NBFC loans were positive, the amount may not be sufficient for the NBFC sector as a whole from a forward-looking perspective. medium term. “In our assessment, the total outlay under the government package for MSMEs and NBFC amounts to around Rs 6 lakh crore. However, actual government spending may be limited to around Rs1-1.9 lakh crore, “said Nirmal Bang.
There are still risks of downgrade
India has a higher debt-to-sovereign GDP ratio than most other emerging markets. One of the concerns for markets and policymakers is possible action by rating agencies, Credit Suisse said.
With just GDP growth this year, debt to GDP is likely to increase substantially in India this year. So far, analysts don’t expect Thursday’s announcements to have much of an impact on the deficit. The impact of Thursday’s announcements on the fiscal deficit will be limited to 0.08 percent of GDP, Nomura India said. “As long as it is financed locally and perceived as sustainable, borrowing costs can be kept under control,” said Credit Suisse.
India received the last “garbage” rating in 2006-07.
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