Stocks can't keep defying slowdown as govt steps fail to convince investors

Analysts say the government's booster dose might not be enough to spur demand in the near term, meaning India's economic woes will continue to weigh on shares and the rupee

Investors are finding government steps to lift India’s sagging growth to be too little, too late.

A three-day rally in stocks faded Wednesday after a gauge showed weakness in the country’s economic activity worsened last month. The lingering pain raised doubts about the effectiveness of the steps announced Friday to spur growth.

Not surprisingly, data due Friday may show that gross domestic product slowed in the quarter ended June, to 5.7% from a year earlier, forcing Finance Minister Nirmala Sitharaman to add to last week’s measures to re-ignite demand.

“If GDP growth comes in below 6%, it will force the government to come up with more stimulus measures and the Reserve Bank of India would also be forced to reduce the interest rate,” said A K Prabhakar, head of research at IDBI Capital Market Services Ltd in Mumbai. The RBI has already cut rates to the lowest in nine years.

Analysts, including Jefferies and Edelweiss Broking Ltd say the government’s booster dose might not be enough to spur demand in the near term, meaning India’s economic woes will continue to weigh on shares and the rupee, already Asia’s worst-performing currency this month. 

The S&P BSE Sensex Index rose to a record June 3, the first trading day after data showed the slowest quarterly growth in five years. The gauge began to slide a month later, and ended marking its worst July since 2002, after the re-elected government’s first budget had few steps to revive demand while imposing a tax on foreign funds that’s since been scrapped. 

Fourteen of 19 sectoral indexes have fallen this year. Software exporters, which get most of their sales abroad, is the best performer among the five groups that have bucked the declines.