Why Sitharaman's stimulus package has left stock market unimpressed
What's the story
Domestic stocks plunged on Thursday as the government's stimulus package to revive the economy left investors unimpressed. BSE Sensex ended 885.72 points (2.77%) lower at 31,122.89 while NSE Nifty settled 240.80 points (2.57%) down at 9,142.75. Reportedly, domestic investors are apprehensive about the implementation and the effectiveness of the stimulus packages announced by the government. Here are more details.
Concerns
Boost demand; don't just inject liquidity
According to Mint, investors are looking for measures to boost demand instead of ones that just inject liquidity. Edelweiss Securities said, "Sans a demand boost, the relief package may not be as fruitful. Note that India's IIP growth pre-corona was the slowest since FY92. We await details on the same." It said that a reflation package is anticipated to push spending.
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'Government relied heavily on below-the-line measures'
ICICI Securities said, "Given the limited fiscal room, the government relied heavily on below-the-line measures i.e. measures that do not immediately impact the fiscal deficit but expose the government to long term contingent liabilities." It added, "Government guarantees are a classic example of below-the-line measures and are being used heavily by governments all over the world in the face of COVID-19."
Information
'Cash infusion to kickstart economy very limited'
Economists told Reuters that although the measures amount to policy support of Rs. 5.9 lakh-crore, the fiscal impact on the government's budget wouldn't exceed Rs. 25,000 crore. "The cash infusion to kickstart the economy is very limited," said Deepak Jasani, Head Retail Research, HDFC Securities.
Global markets
World markets plunged for the third day
World markets also witnessed a decline for the third day amid a warning from the World Health Organization (WHO) that COVID-19 may "never go away." Markets in Japan, China, Hong Kong, and Korea also fell 1-2% each. Notably, the US Federal Reserve Chairperson Jerome Powell warned about the worst recession since World War II.
Second tranche
Second tranche of package focuses on migrant labor, small traders
Meanwhile, the second tranche of the stimulus—announced on Thursday—focused on laborers, street vendors, small traders, marginal farmers, etc. Economist at Geojit Financial Services, Deepthi Mathew, told Mint, "[Thursday's] announcements also focused on providing credit support, and were mainly an extension of existing programs. The concept of 'One nation One ration' would be beneficial only in the long run, there won't be any immediate effect."
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'Direct cash transfer needed to support low-income earners'
Further, Mathew said, "The scenario is similar for most of the measures announced on Thursday. Measures such as direct cash transfer are needed to support the low-income earners as they are the worst hit from the current situation."