Markets were being greedy; sops announced are the need of the hour

The proposals are direct humanitarian assistance provided to the masses and this was the need of the hour. The markets were being greedy and selfish to expect relaxation in long term capital gains tax (LTCG), changes in buyback norms and dividends. I don’t think in these times such measures are top of the mind agenda. Since the stock markets were expecting such proposals, we saw the indices trim gains. They do seem disappointed. Instead of helping the stock market, the government did the right thing by helping the masses. The proposal of 800 million poor people in the country getting 5 kg of rice/wheat per month free of cost, in addition to the 5 kg they already get is a good humanitarian gesture and ensures food security.

That said, with these announcements done and the coronavirus pandemic, it has now become a question of sustenance rather than focusing on gross domestic product (GDP) growth or even the fiscal deficit. These issues are all secondary now. First we need to ensure survival – and that’s what the government’s proposals announced today are aimed at. Given the Covid-19 pandemic and the magnitude of the problem at hand, things like LTCG and tax structure of buybacks and dividends can be dealt with later at a more appropriate time. Stock markets, on the other hand, will always think of measures that will help them.

So, will the markets give up gains seen over the past few days?

Well, there is some amount of ‘selling fatigue’ now setting in. the markets have dropped sharply from their recent highs and have seen a marginal rebound. There are reports of the health scare engulfing more people in its ambit. This is worrisome. Since the Indian markets are very much influenced by foreign institutional investor (FPI) flows, global developments will dictate the broad market trend from here, in addition to the developments back home.

Investors should see how the US Federal Reserve’s (US Fed’s) $2 trillion stimulus package plays out and impacts their economy. Moreover, developments in China and Europe will be key in terms of policy initiatives. That said, I don’t think the downtrend will end here. There will be another round of selling that is likely to hit the markets going ahead. Unless the news flow starts to improve dramatically, I don’t think the markets will be on a sustainable path to recovery.

U R Bhat is managing director at Dalton Capital. Views are his own.

(As told to Puneet Wadhwa)