Fiscal Stimulus – Money Well Spent!
The week gone by was extremely volatile and lacked any clear trend, which suit traders but challenge investors’ confidence on the durability of the recovery that we have seen since markets made lows in March. Sensex was flat in the last five sessions and markets fell almost three per cent but recovered complete losses by end of Wednesday’s trading session.
Telecom sector continued its smooth performance on bourses with BSE Telecom index gaining almost 6.55 per cent in the previous five sessions while, auto stocks surprised positively with BSE Auto index inching up by 5.85 per cent. BSE Metal index gained 4.18 per cent while, BSE FMCG index was up by 1.40 per cent. Real estate and Capital goods indices joined the upmove while inching up by 5.18 per cent and 4.09 per cent, respectively.
Market reacted positively to Prime Minister Narendra Modi’s announcement without any support from the global markets on Wednesday. The market participants can take solace from the fact that Finance Minister Nirmala Sitharaman has prioritised MSMEs in her stimulus. MSMEs is significant for India because it contributes 45 per cent of India’s total manufacturing output and 40 per cent of India’s exports, which makes up to 30 per cent of Indian GDP. By aiding MSMEs and solving their liquidity issue, the government has smartly attempted to address both the issues on supply side as well as on the demand side as MSMEs are one of the biggest employers in India. The credit problem is also addressed as the government has literally offered credit guarantee schemes, which will improve the risk appetite of the bankers, who will in turn, start lending at much faster rate and that is what the need of the hour is.
Clearly, Indian government has shown its willingness to adopt unconventional means to achieve its economic goals and should comfort all those who doubted government’s inaction when it came to stimulus being announced. Not to forget the size of stimulus being equal to that of the size of Pakistan GDP, which surprised all and sundry. The size of the stimulus hints that the government is aware of the severity of the problem and can get the economy out of woods by various means. This should augur well for longterm investors.
Globally, the markets are correcting as the market participants believe that the valuations are unreasonable and the worst is yet to come. There is no incremental positive news (in the past week) coming from global markets, neither in terms of vaccine to defeat COVID- 19 nor from various economies that are showing signs of bottoming up.
For the coming week, investors and traders will have to analyse the comments and the details of stimulus package that Finance Minister announces. It goes without saying that those stocks that stand to benefit from the stimulus package, will continue to show relative strength hence, bank on them for near term at least.
Defensive may remain in focus throughout the month. Having said, both traders and investors should remain cautious of the fact that defensives are getting a little expensive with phenomenal surge in prices thereby, leading to unsustainable valuations. A bottom-up approach will be profitable while betting on defensives such as pharma & FMCG. Quality financial stocks may do well when market normalises, however for the time being, financial stocks can be expected to take heavy pounding and can deteriorate the overall portfolio performance. High beta plays can be avoided for the moment. While the stimulus announcement in India has created some positive sentiment, investors and traders must remember that the markets have already discounted the global stimulus as well as the various actions taken by the central banks of the large economies.
