Forbes India 15th Anniversary Special

Stock markets gain momentum on govt's economic measures

Banking, housing finance shares gain most after Finance Minister Nirmala Sitharaman's key announcements, which included withdrawal of surcharge on FPI, immediate Rs 70,000 crore recapitalisation for public sector banks

Salil Panchal
Published: Aug 26, 2019 02:01:00 PM IST
Updated: Aug 26, 2019 03:23:08 PM IST

Stock markets gain momentum on govt's economic measuresImage: Mexy Xavier

Indian equities opened strong Monday reacting to the government’s slew of measures announced Friday evening. The benchmark BSE Sensex index was trading at 37,241.94, up 1.47 percent or 540.78 points, but just off from the day’s high of 37,363.95 points.

Investors appear to be nervous about weak global macro-economics and the rupee, which continues to deteriorate against the dollar at 72 on Monday morning.

In its measures announced Friday, the government decided to withdraw the controversial tax surcharge on the Foreign Portfolio Investment (FPIs) announced in the Budget last month. It also decided to remove the enhanced surcharge levied on long-term and short-term capital gains, which was announced earlier.

Both these moves will be seen as a sentiment booster for the stock markets. Major benchmark indices are ruling at near six-month lows.

Sitharaman, on Friday, had announced an immediate release of Rs 70,000 crore by way of recapitalisation for public sector banks. Though budgeted for, the immediate injection will be seen as a huge positive for the banking sector, which have started to see a fall in the levels of gross non-performing assets in Q1FY20.

Also, several of the public sector banks that were placed under the restrictive PCA regime, have been freed from it by the Reserve Bank of India in recent months.

Axis Bank stock was up 1.82 percent at Rs 675.45 and ICICI Bank stock was trading up 2.4 percent at Rs 405.25 at the BSE. Non-banking financial company (NBFC) Bajaj Finance was also up 3.3 percent at Rs 3,280 on optimism that banks will be better placed to lend to NBFCs and small-and medium enterprises in coming months.

Finance Minister Nirmala Sitharaman had announced these measures in a direct move to allay concerns which corporate India and financial market investors might have relating to a slowing pace of growth and weakening consumption over the past few quarters.

The biggest takeaway of Finance Minister Nirmala Sitharaman’s press conference was that the government is finally listening. It has, temporarily, put to rest two concerns which Indian businesses and investors were having: That the government did not trust business and that the government has no specific game plan to tackle the domestic economic slowdown.

The fact that a specific singular hefty economic stimulus was not announced—which would have put more pressure on the fiscal deficit—might actually be a positive at this stage, experts said.

India is witnessing its slowest growth in the past five years—with GDP growth of 5.8 percent in the fourth quarter of FY19, from 6.6 percent in the previous quarter. The RBI has—in a move to spur demand—cut interest rates by lowering the repo rate by 110 basis points in four successive monetary policy meetings between December 2018 and August this year.

Foreign portfolio investors were net sellers in July for Rs 12,419 crore in equities—their highest level since October 2018—according to data from the National Securities Depository Ltd (NSDL).

The recapitalisation move will release liquidity to the tune of Rs 5 lakh crore into the banking system for lending. “The immediate capital infusion will be a huge positive for banks and make them better placed to lend and thus improve credit growth,” says Sameer Narang, chief economist at Bank of Baroda.

HDFC stock rose 4.03 percent to Rs 2,105 at the BSE on Monday while Indiabulls Housing Finance rose 3.05 percent to Rs 482.15.

Sitharaman has promised that the government will come back, this week, to announce a fresh set of measures to help boost the economy. These could relate to the real estate and core sectors of the economy, which might thus help improve job creation in coming months.

Responding to a specific query at the press conference on whether all these measures would help to create employment, Sitharaman said, “These are all being addressed only for that purpose.”