Government has announced
measures to boost the economy given falling growth rates and the slowdown in industries ranging from automobiles to even consumer staples. On Friday, finance minister Nirmala Sitharaman announced the withdrawal of enhanced surcharge on foreign portfolio investors (FPIs) and domestic investors. That apart, public sector banks will also be infused with Rs 70,000 crore capital.
According to experts, the measures may boost the economy in the short term, but the issues will like weak earnings, demand slowdown may take a longer time to completely fade away.
"The measures should help stir positivity and gradually bring back animal spirits. The steps taken to infuse liquidity in the banking and NBFC sector should help alleviate stress in the system and set in motion the recovery process," said Ashish Shanker, Head- Investment Advisory at Motilal Oswal.
Vinod Nair of Geojit Financial Service also believes that these measures may reverse the FPI selling and restore some confidence in the Indian markets.
However, Prabhudad Lilladher said that that the current slowdown is a combination of cyclical and structural issues and will take time to fade away. "The latest announcements show the intent of the government to remove some of these irritants and structural issues, which will go a long way in preventing incremental damage. Although we don’t expect these measures to boost sagging rural demand and impact of widespread floods, it raises hopes of recovery from the third quarter of FY20," it added.
CLSA also noted that the measures announced so far are revenue-neutral/insignificant from a fiscal perspective.
Here's how top brokerages responded to the announcement and the stocks they prefer: Prabhudas Lilladher
The brokerage expects markets to cheer this news and recommend investors to use these turbulent times to build a portfolio of companies with moats in their business and ability to withstand technology disruptions. Maruti, Ashok Leyland, L&T, Siemens, HDFC Bank, Cholamandalam Finance are likely to be direct benefices of the same, the said.
While earnings expectations remain elevated and disappointments are not ruled out, Nomura said that it believes in a scenario where we see risks to global growth amid rising trade tensions, a large and liquid Indian market with a less than average leverage to global growth could do relatively better. Top picks for the brokerage are ICICI Bank, ICICI Prudential, L&T, SBI, and Concor.
The brokerage expects India's relative underperformance year to date to emerging markets may reverse in the weeks ahead post the government measure. However, it added that absolute upside from Indian stocks to be capped due to cautious global. The brokerage likes financials, consumer discretionary and industrials both large and mid-caps.
According to the brokerage, the government’s bid will boost the markets in the short-term and some of the ailing industries, including automobiles and housing finance companies will benefit from the newly announced measures.
“We see the announcements, and especially the government’s flexibility and focus on ensuring such confidence-boosting measures continue, as a short-term positive for the market,” said the brokerage.
“In particular, we see autos (commercial vehicles, passenger vehicles), PSU banks and housing finance companies, and infrastructure stocks reacting positively, and the moves as modestly negative for IT services near-term,” it added.
According to the brokerage, the measures announced do not impact the fiscal. "These measures announced by the government and expectations for more over the next couple of weeks will likely improve investor sentiment and should drive at least a short-term bounce, as the government has given a clear signal that it acknowledges an economic slowdown and is willing to act promptly to address the issues. The economic outlook will depend on how big the measures to boost housing turns out to be," CLSA said in a report.
With growth sluggish, India's FM made another attempt to boost the economy with measures straddling taxation, infrastructure, markets, banking/NBFCs, MSMEs and autos. But according to Jefferies, they may help little in the near-term but it is still encouraging to see the government engage on issues with more steps likely too, especially in housing. Even so, fiscal constraints preclude any meaningful stimulus prompting us to stay cautious amid soft earnings and extended valuations, it added.
Kotak Institutional Equities
The government’s measures will help improve market sentiment and demand to some extent, however, the absence of any fiscal stimulus in the form of GST cuts may disappoint a section of the market, the brokerage noted. Also, the sharp escalation in China-US trade issues will weigh on global investment sentiment and macro-economic conditions, it added. The government would do well to follow up the recent measures with structural reforms to turn an increasingly adverse global situation into an opportunity, Kotal explained.
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