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Markets snub govt package to spur demand, analysts say measures are for short term

Mumbai: Market investors were not significantly enthused by the government’s package meant to uplift consumer demand and infrastructure as the announcements did not meet their expectations. Though the Nifty hit 12,000 -mark during the day, overall markets were marginally higher amid volatile trade on Monday. The 50-share index ended at 11,930.95, up 16.75 points or 0.14%. The BSE Sensex ended at 40,593.80, up 84.31 points or 0.21%.
A firm rally in global peers also did not see follow-up buying in Indian equities. Markets in China gained over 2%, while Japan’s Nikkei rose 1% while there was a 2% rise by Hong Kong’s Hang Seng index.
On Monday, India’s Finance Minister announced fresh measures to spur demand as well as extend capital expenditure support for states. However, analysts were cautious that the package lacks commitment to generate sustainable growth.
“Government’s effort to stimulate consumer demand by offering advances and cash voucher schemes looks to be short term in nature and lacks commitment to have a sustainable growth. This may lead to a kind of destocking led demand improvement ahead of festivals or fiscal end. However, it may not necessarily result in a sustainable recovery. This may not entice the markets,” Arjun Yash Mahajan, Head Institutional Business at Reliance Securities said.
Rusmik Oza, Executive Vice President, (Head of fundamental research – PCG), Kotak Securities Ltd also agrees that the incentive to government employees to spend during the festive season may not add much to the demand as the amount being spent is on the lower side.
Finance minister Nirmala Sitharaman on Monday announced a set of measures worth ₹9,675 crore to boost consumer demand by front-loading some expenditure. The measures include LTC cash voucher scheme for central government employees and a special festival advance scheme. Under the LTC cash voucher scheme, government employees can opt for receiving cash amounting to leave encashment plus three times the ticket fare to buy goods which attract 12% or more GST.
Sitharaman also said an additional budget of ₹25,000 crore will be provided as capital expenditure to develop roads, defence, water supply, urban development and domestically produced capital equipment, to boost economic growth.
“This is not a big stimulus but can have a benign effect on demand,” V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said.
According to Radhika Rao, Economist, DBS Group Research the government estimates that the potential spending boost could total ₹73000 crore, which could rise to ₹1 trillion if the private sector also participates. “Markets had been anticipating further fiscal support from the government after the first two packages were a mix of subsistence support for economically vulnerable parts of the society during the strict lockdown, alongside medium-term reform measures. Today’s announcements are likely a part of the post-lockdown fiscal push to revive the economy. The government is seeking to time this boost to coincide with the upcoming festive period and spur overall consumption while also being spending-lite so as not to put additional burden on the exchequer, in midst of a notable shortfall in tax and divestment revenues,” she added.
Meanwhile an over two-hour power snag in Mumbai led to volume decline to some extent though both the exchanges and large brokerage houses have said that trading was not affected during the outage.
“There has been no disruption or outage of our services and our multi-modal service platforms were functional as normal. Customers were free to access us from any of the available mode of services – desktop/website, mobile app, call-n-trade, or through our branch network – based on their convenience,” said an ICICI Securities spokesperson.
Data from BSE and NSE, however, showed that volumes on equity and derivative segments on both the exchanges were slightly lower on Monday compared to average trading volume in previous days of October. Read from source….