Markets surge 16% from lows in March on stimulus boost

Indian stocks increased for the third day in a row when the government announced measures to overcome the recession during the 21-day blockade, fuelling sentiment. BSE Sensex ended at 29,946.77, an increase of 1,410.99 points or 4.94%, while Nifty was 8,641.45 points or 323.60 points or 3.89% higher than Thursday.

Most markets in the Asian region were under pressure on Thursday as investors waited for the release of the first U.S. jobless claims data in the evening.

The Indian government has announced a package of ₹1.7 trillion, or around 0.8% of gross domestic product (GDP), to help low-income groups during a 21-day national blockade.

Nevertheless, investors are still waiting for additional measures to help entrepreneurs as well as small entrepreneurs and start-ups. In anticipation of the government’s recovery plan, the main indices have risen by 13 to 15% in the last three trading sessions.

These gains were not enough to compensate for the huge losses suffered by the stock markets in March, but both Sensex and Nifty increased by 16.8% and 15.05% respectively from the lows reached this month.

According to Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, markets have brightened up the tax package and are now waiting for measures to help businesses, banks, SMEs and start-ups. He said it will remain highly volatile and will continue to monitor global markets and the trend of coronavirus cases at a global and local level.

Jain/Mint Screens

Graph : Parace Jane/Mint

We’ll know if the government’s measures will bring the virus under control in the next two or three weeks. While it goes without saying that investors are worried at this stage, they should not panic as they have lost 30 to 50% of their value in recent weeks, even if they continue to see panic around them. History shows that markets recover very quickly when things get out of hand. We believe that the markets will reach the bottom long before the intensity of the spread of the virus decreases, said the manager of the leading investment fund.

However, analysts remain concerned that the pandemic in India and the subsequent 21-day blockade pose a significant risk to India’s economic outlook. The negative effects of this situation could offset the benefits of a sharp fall in crude oil prices and the expected monetary and fiscal stimulus.

According to Nomura, the direct economic impact of the embargo will be 4.5% of GDP (plus indirect effects), and as the overall size of the financial package is relatively small and reflects the government’s budgetary constraints. It considered that the government could temporarily suspend legislation on fiscal responsibility and fiscal management. As a result of low growth (low tax rate) and the stimulus package, the central government budget deficit will increase to 5% of GDP in fiscal year 21, while the fiscal target of 3.5% has been met. In Nomuru, the general government deficit increases to 8.5-9.0% of GDP.

However, UBS is of the opinion that the reversal of the Indian risk seems attractive for India, but only if the negative effects of Covid-19 are assumed to be short-lived. The brokerage firm has revised its Nifty target for March 2021 to 10,000 with growth and decline scenarios of 11,500 and 6,000 respectively.

In the meantime, the rupee has recovered from the strengthening of the stock. The Indian rupee closed at 75.15 against the Dollar, an increase of 1.26% compared to the previous closure.

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