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MOSL: INDIA STRATEGY-A booster from the FM's desk-More to follow!-Unveils comprehensive package to lift growth and sentiment

INDIA STRATEGY: A booster from the FM's desk; More to follow!; Unveils comprehensive package to lift growth and sentiment

 

• Finance Minister Ms Nirmala Sitharaman, in her press conference on 23rd Aug'19, announced a quick shot in the arm for the economy via a much-anticipated 'stimulus' package to lift market sentiment. More importantly, the FM stated that she met various industry participants to integrate their suggestions, sending across a reassuring message that the 'government is listening'. The package does not throw fiscal caution to the wind and is fiscally prudent. Even Mr Piyush Goyal, Minister of Commerce and Railways - while addressing the CEO Track at our 15th AGIC last week - had stressed on the government's stance of maintaining fiscal prudence while looking to boost growth.
• The key decisions announced by the FM: [1] Reversing the surcharge on capital gains for domestic investors and FIIs. [2] Up-fronting of INR700b capital infusion in PSU Banks and a nudge to PSU Banks for lower interest rates for the customers. [3] INR200b additional liquidity for NBFC/HFCs. [4] Faster GST refunds and easier bill discounting for MSMEs to ease liquidity concerns. [5] Set of relief measures for the Automobile sector to revive demand and address near-term concerns/uncertainty around BS-VI. [6] Several measures to facilitate easier dealing with tax authorities, ease of doing business (CSR violations not to be treated as criminal offence), decision making in Banking and compliance procedures pertaining to KYC. The FM has also promised two more rounds of announcements over the next two weeks. The government has acknowledged the issue of stuck real estate projects - especially in Mumbai and NCR region - and will make a separate set of announcements pertaining to the housing sector next week.
• Our view: FM's announcements will serve well to boost sentiment, which has been impaired of late due to economic slowdown, weaker earnings delivery/corporate commentary, taxation measures in the budget and issues pertaining to NBFC liquidity. More importantly, the government's intention and willingness to take feedback and act promptly may offset the pessimistic market narrative, in our view. Timing-wise, it has come just ahead of the beginning of a long festival season and may boost consumer sentiment. Expectations of more measures over the next two weeks will likely drive a short-term bounce after the sharp correction post budget. Sticking to fiscal prudence will ensure that the recent hardening of 10-year G-sec yields may see some easing now. That said, we believe that a durable pick-up may have to wait until earnings recover. Corporate Banks, NBFCs (mainly HFCs, vehicle financiers) and Autos are the key beneficiaries of the measures unveiled.