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How healthy is the new dose by Finance Minister

Uploaded Date 29-Aug-19
eco new

An analysis of steps taken by the minister to fight slowdown in the economy


This week  Nirmala Sitharaman, the Finance Minister of India, made a long-awaited announcement and took some calculative moves to boost the economy. How far these measures would help in reviving the slowing market is a matter of speculation and waiting. But the acknowledgment of the problems at the highest level is a shot in the arm as the market can genuinely expect more measures to follow and aid a slowed-down economy.  Shyam Advisory brings to you a detailed analysis of the proceedings in the market and what still worries the market.


To begin with, the initial announcements which promised removal of FPI surcharges and GST refunds being made available to the industry are a welcome move. These announcements are expected to boost sentiments positively in the short term. However, to expect that these steps alone would help in fighting the slowdown and revive the earnings would be oversimplifying the things. How far these steps would go in solving the worries of the market would also be decided by the follow-up steps taken by the government.


Another significant move that came as a part of the announcement was an infusion of liquidity in Housing Finance Companies to be overseen by the National Housing Bank. This infusion of liquidity, which was announced to be up to 20,000 crore rupees could partially fight the liquidity crunch being faced by the housing sector. Along with that, the move to clear GST dues of MSMEs within 30 days should also solve the liquidity worries of the industry.


However, to have a grasp of the situation, one must understand the nature of the slowdown facing the economy. It is a cocktail of being cyclical as well as structural in nature. Liquidity crunch in the economy is an aftereffect of the slowdown and not its root cause. Speaking of the automobile industry, the announcement to extend the usage of BS-IV vehicles and resuming purchases by the government departments is a positive but marginally small measure. The auto sector has a very long road to recovery and nothing much changes with the announcement.


Although RBI has reduced Repo rated by an unprecedented amount, the transmission of rates has been slow. This is a well-documented fact, which has been acknowledged by the Reserve Bank itself. As long as there are higher interest rates available on alternative avenues like small savings banks, it would be faltering to assume that the transmission of rates by the banks would be swift. Moreover, the structural problems facing the economy may not be eased by a reduced monetary policy rate alone.


It is important to take a note of the FY20 Q1 earning which have been low. Excluding the banking stocks which lifted the Nifty, the earning have been negative. The projected earnings of the present fiscal year are riding on banking stocks alone. The present situation puts a significant question mark on the performance of other sectors of the economy and the future growth perception as well. With dismal earnings, the present market may look beaten down but the stocks are definitely not available at cheap prices. The present announcement only gives way to a log cycle of consolidation where the market would await further reforms.


In such a market, investors are advised to follow stock tips, NCDEX tips, and banknifty tips rather than being speculative. At Shyam Advisory, we regularly publish stock tips, Intraday tips, NCDEX tips, and Banknifty Tips. Our research team analyses the stocks for technical as well as fundamental indicators and brings the best updates to you. Subscribe to our blog for regular stock tips, NCDEX tips, and banknifty tips and updates on the market.