Indian market gave a massive thumbs down to the stimulus package that the FM announced over the last week. The package, filled with long term structural reforms, failed to provide any short term stimulus. The market wanted the government to fuel demand by putting more money in the hands of the consumers. However, that wish remained unfulfilled.

Market tanked as the stimulus package fell short of the expectation. Sensex lost 3.44% to close the day at 30,028.98 while Nifty lost 3.43% to close at 8,823.25. Cipla (up 5.29%), Infratel (up 5.28%) and TCS (up 2.27%) were the major gainers while IndusInd Bank (down 10.02%), Zee Entertainment (down 8.58%) and Eicher Motors (down 7.88%) were the major losers of the day.

The day was cruel for Banking and financial stocks in particular as the FM granted an exemption to COVID-19 related defaults from trial under insolvency and bankruptcy code for a period of up to 1 year. The government also raised the minimum threshold to initiate insolvency proceedings to Rs 1 crore from Rs 1 lakh, which will insulate micro, small and medium enterprises (MSMEs).

As a consequence of this move, the finance industry fears that post suspension of IBC proceedings, Banks and NBFCs could see large slippages and lower recoveries post 1 year period. Many experts also called for allowing the banks to form a committee to decide whether to initiate any legal action against a borrower or not on a case to case basis rather than completely halting the IBC process.

Not shelling out enough, eh? 

Indian Prime Minister's massive economic stimulus package of Rs 20 tn or 10% of GDP has disappointed the market as it lacked any demand revival triggers or relief for Covid-19 impacted sectors. 

Current economic stimulus package has a fiscal impact of only ~Rs 2tn  which will expand the central fiscal deficit to 6% for FY21 after factoring in 3.4% decline in revenue receipt and 12.3% growth in overall expenditure.

The package contains all the liquidity boosting measures to strengthen the supply but demand boosting measures have been avoided to keep the fiscal deficit in check.

Given the limited fiscal space and unwillingness to increase borrowings, the government has escaped demand boosting measures such as tax deduction, fixed amount transfers or subsidies. 

Key takeaway:

Going by the market's reaction the package remains completely inadequate and there remains a lot to be done. It is also likely that the government will bring out another round of stimulus package, in case, liquidity infusion does not result in an economic revival. 

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