The benchmark indices fell nearly 3 per cent on Thursday, erasing all the gains made a day earlier on optimism over the Rs 20-trillion rescue package announced by the government, as experts voiced concerns that it won’t be enough to revive the weakened economy as there was little to boost demand and more that focussed on boosting liquidity.
The Sensex closed at 31,123 points, down by 886 points, or 2.8 per cent, while the Nifty declined 241 points, or 2.6 per cent, to end at 9,143. A day earlier, markets had risen 2 per cent, ahead of a press briefing by Finance Minister Nirmala Sitharaman to outline the mega-economic relief package. On Wednesday, the government announced Rs 3 trillion worth of collateral-free loans to small businesses. The second round of announcement, which came after the market close on Thursday, included free foodgrain to migrant workers and employment schemes.
“Investors were hoping there would be a massive fresh cash infusion, similar to what other countries have done to revive demand. There are some infusions, but a lot of it is deferrals and encouraging the system to lend more. That has disappointed the market,” said G Chokkalingam, founder, Equinomics.
Following Thursday’s announcement, the Nifty contracts, traded on the SGX, crashed over 4 per cent to below 9,000, indicating a fresh round of selling on Friday.
“The package doesn’t entail putting money in the hands of the people. Markets were disappointed when they realised that some of the measures have already been announced. Saying we have given tax refunds on time and taking credit for it has not gone down well with a lot of investors,” said Alok Churiwala, managing director of Churiwala Securities.
Some developed countries have announced cash dole outs to their citizens to boost demand and kickstart business activity. However, given the strain on the government balance sheet because of lockdowns, some believe the government has limited options.
“If the government had come up with a massive fiscal stimulus, we would be saying we are at the risk of a sovereign downgrade. You can’t win with that approach. The government had to find a way to keep it off the balance sheet for the time being,” said Andrew Holland, CEO, Avendus Capital Market Alternate Strategies.
The risk of a second wave plagued most global markets on Thursday, with most European markets dropping more than three per cent, while US futures market indicated another weak opening on the Wall Street. Investor sentiment had weakened after WHO’s comments that the virus could become endemic and US Fed Chairman Jerome Powell’s assessment that economic recovery will be slower than expected.
Some said investors will take time to analyse the government measures and its impact on the economy.
“The market is taking its time to digest the implications of the package. Once it understands the significance of the government's measures, the markets will react. One can’t attribute the sell-off entirely on stimulus disappointment,” said Shankar Sharma, founder and vice-chairman of First Global.
Overseas investors sold shares worth Rs 2,152 crore on Thursday, while domestic investors provided buying support to the tune of Rs 800 crore. Index heavyweight Reliance Industries fell 4.1 per cent, HDFC Bank 3.6 per cent, and ICICI Bank 3 per cent.