Sensex zooms 793 points after Sitharaman’s ‘mini-budget’

Indian markets took it in their stride the trade-related tensions troubling overseas markets and advanced sharply on Monday on the back of Finance Minister Nirmala Sitharaman’s measures announced last week to combat slowdown and improve foreign investor confidence.

Both the Sensex and Nifty surged over 2 per cent as investors rejoiced over what many analysts are dubbing as Sitharaman’s “mini-budget”. The single biggest push came via the roll-back of the much criticized tax surcharge on Foreign Portfolio Investors (FPIs).

The BSE Sensex jumped 792.96 points, or 2.16 per cent, to close on Monday at 37,494.12, while the Nifty gained 228.50 points, or 2.11 per cent, to 11,057.85.

The financial sector and public sectors banks (PSBs) led the charge on Monday. The Nifty Financial Service index closed 4 per cent higher, followed by the Nifty PSB index that was up 3.58 per cent. The Nifty Realty index surged by 3.74 per cent.

“The initial set of actions, though small, has enhanced market sentiment and confidence,” said Vinod Nair, Head of Research, Geojit Financial Services Ltd.

The market will trade in a positive bias awaiting further development regarding additional government measures and US-China trade talk, he added.

The top gainers on the Sensex were Yes Bank, up 6.33 per cent, followed by HDFC, up 5.24 per cent, Bajaj Finance was up 4.66 per cent, HDFC Bank rose 4.29 per cent, while ICICI Bank went up 4.09 per cent.

Sitharaman on Friday announced the roll back of the surcharge levied on capital gains on shares for both foreign and domestic investors, provided an upfront Rs70,000-crore equity infusion into PSBs to boost lending, and measures to push automobile sales.

She also indicated more such measures would be soon announced which would focus on the real estate sector.

Meanwhile, the latest FICCI Economic Outlook Survey has pegged first-quarter GDP growth at 6 per cent in 2019-20 while for the whole fiscal growth is seen at 6.9 per cent in 2019-20.

The growth numbers for the first quarter are expected to be released by Central Statistics Office (CSO) next week. Ficci said boosting agriculture sector, strengthening MSMEs, undertaking factor market reforms are key to steering the economy out of the slowdown.

Furthermore, the annual median GDP growth forecast for 2019-20 has been pegged at 6.9 per cent, with a minimum and maximum estimate of 6.7 per cent and 7.2 per cent, respectively. While the median growth forecast for agriculture and allied activities has been put at 2.2 per cent for 2019-20, the industry and services sector are expected to grow by 6.9 per cent and 8.0 per cent respectively during the current financial year.

The survey was conducted during the months of June-July 2019 amongst economists from the industry, banking and financial services sectors.

With regard to inflation, the latest official numbers report moderate price levels. The outlook of participating economists on inflation also remains benign. The median forecast for Wholesale Price Index based inflation rate for 2019-20 has been put at 2.9 per cent, with a minimum and maximum estimate of 2.1 and 5.7 per cent respectively. The Consumer Price Index, on the other hand, has a median forecast of 3.7 per cent for 2019-20 - with a minimum and maximum estimate of 3.4 and 4.1 per cent, respectively.

Concerns remain on external front with median current account deficit forecast pegged at 2.3 per cent of GDP for 2019-20. Merchandise exports are expected to grow by 3.6 per cent, while imports are expected to grow by 4.0 per cent during the year. Overall decline in global growth forecasts, escalating trade tensions, uncertainty around Brexit and foggy outlook on international crude oil prices have emerged as key concerns on the external front.

Slower global growth will impact India’s growth prospects as well going forward. In fact, economists unanimously indicated that India’s potential growth rate would be in 7.0 7.5 per cent range, which is lower than the 8 per cent plus potential growth rate estimated until a few years back.

However, a majority of participants felt that potential GDP growth would settle at the higher end of the range at 7.5 per cent. The participating economists were sceptical and divided about replicating the previous high growth performance of over 8 per cent and sustaining it at that level. Those who were optimistic believed that a turnaround would be challenging given the current global environment and could take at least three to four years.

On the strategies to achieve India’s potential growth rate, the surveyed economists suggested four key areas that needed immediate attention: boosting agriculture sector; strengthening MSMEs; undertaking factor market reforms; and enhancing avenues for infrastructure financing.

The recently released unemployment numbers by NSSO re-affirm the grim situation with regard to employment in the country.

Indo-Asian News Service