FM Sitharaman’s Measures Will Boost Near-Term Sentiment, But Turnaround Still Some Time Away
Finance Minister Nirmala Sitharaman with Finance Secretary Rajiv Kumar during a press conference in New Delhi, India (Source: PTI)

FM Sitharaman’s Measures Will Boost Near-Term Sentiment, But Turnaround Still Some Time Away

The initial measures announced by the Finance Ministry to revive India’s economy from a five-year low will improve sentiment in the short term, according to investors and brokerages, but long-term economic turnaround will depend on reforms and corporate earnings.

The announcements and expectations of more support in the coming week will likely improve investor sentiment and should drive at least a “short-term bounce” to the markets, brokerage firm CLSA said. Motilal Oswal, Morgan Stanley and Kotak Institutional Equities agreed.

Finance Minister Nirmala Sitharaman announced a slew of measures on Friday, including a rollback of the tax surcharge on foreign investors and an immediate infusion of Rs 70,000 crore to boost capital of banks. She, however, didn’t outline any major fiscal support or cuts in the goods and services tax — as businesses had been calling for — focusing instead on steps to spur foreign funds and lending. The government also said it would announce more measures this week.

“Upfront PSU bank recapitalisation, removal of surcharge on FPIs, focus on freeing up liquidity after delays in GST refunds/payments by government, and support to auto industry should improve the near-term growth outlook,” according to Morgan Stanley.

Nandita Agarwal Parker, managing partner at Karma Capital, said, “India has been underperforming global emerging markets in the last couple of months. That underperformance will correct itself.” The measures announced are “extremely positive” to revive sentiment, liquidity and facilitate transmission of rate cuts, she told BloombergQuint.

“There aren’t many countries that can say there will be an upswing in the second half of the year... Further measures, however, are require and we will be engaging with the government to highlight those,” Parker said.

Andrew Holland, founder of Avendus Capital, agreed. “We’ll be an outperformer in the very short term but we need to hear what the finance minister has to say on the other industries, going forward,” he said.

Prashant Kumar, deputy managing director and chief financial officer at State Bank of India, said the expectation was especially strong for the auto sector. Even then, the measures taken will increase the demand for cars and commercial vehicles, he said.

Yet, IDFC Securities said the measures are not reformative. According to Motilal Oswal, a “durable pick-up may have to wait until earnings recover”.

Here’s what the brokerages had to say...

Motilal Oswal

  • Announcements will serve well to boost sentiment
  • Intention, willingness to take feedback and act promptly may offset pessimistic market narrative
  • Boosters came just ahead of the beginning of a long festival season and may boost consumer sentiment
  • Expectations of more measures will likely drive a short-term bounce
  • Sticking to fiscal prudence will ensure some easing of 10-year government-security yields
  • Believes that durable pick-up may have to wait until earnings recover
  • Corporate Banks, housing finance companies, vehicle financiers and autos are the key beneficiaries of the measures unveiled


  • Several positive announcements by the government to improve sentiment
  • Surplus liquidity and repo-linked interest rates may lead to lower interest rates
  • Absence of any fiscal stimulus in form of GST cuts may disappoint few sections of the market
  • Structural reforms can turn an adverse global situation into once-in-a-lifetime opportunity


  • Among all announcements, reducing surcharge on capital gains stood out
  • Announcements likely to increase liquidity in the economy, reduce interest rates and will partially boost the animal spirit among all the strata of the economic affairs
  • Current announcements likely to arrest the fall in equity and currency markets
  • Coupled with fall in oil, the measures should lead to a significant bounce-back in the coming days

Elara Capital

  • Government offers a soothing balm to markets; FPI outflows to get arrested
  • Economic recovery, however, some time away
  • Liquidity enhancing measures should revive demand at margin
  • Capex-related spends could see sharp cuts

Morgan Stanley

  • Measures are focused on boosting sentiment and addressing certain sector specific issue
  • Monetary transmission should get a fillip; government’s policy response likely to be calibrated
  • Upfront PSU bank recapitalisation, removal of surcharge on FPIs, focus on freeing up liquidity after delays in GST refunds/payments by government, and support to auto industry should improve the near-term growth outlook

IDFC Securities

  • Government trying to shun the recent public impression that it is disregarding economic growth
  • There is an attempt to refurbish a pro-reform image, measures are not reformative
  • In the short-term rupee may gain stability from the measures announced
  • Announcements give us the confidence to expand beyond staples to discretionary, including autos

Equirus Securities

  • Liquidity improvement measures should help economy, markets should react positively
  • Financials, auto and building material: easing liquidity situation to help
  • Infrastructure: timely resolution of payments and benefits of lower interest rates to boost overall profitability
  • Consumers: nothing direct, but stability could aide demand
  • Metals: growth revival in auto to be positive
  • Media: adding some cheer to the festive season


  • Front-ended infusion of Rs 70,000 crore should be positive for Bank Of Baroda, Punjab National Bank and Union Bank
  • Government’s push for rate cut may restrict the expected net interest margin improvement
  • National Housing Bank refinance is a positive, but clarity needs to emerge on credit enhancement and co-lending instruments and implementation
  • Auto sector incentives not a game changer, at the margin level this is positive for commercial vehicle financiers
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