FM’s Package To Give A Boost To Market Sentiment On Monday

Experts however say more reforms are required to restore confidence in the market

FM’s Package To Give A Boost To Market Sentiment On Monday
FM’s Package To Give A Boost To Market Sentiment On Monday
Yagnesh Kansara - 26 August 2019

Mumbai: The announcement of the financial package by the Finance Minister (FM) on Friday last, doling out much needed reliefs to the various sectors of the economy is expected to come to the rescue of the stock market when it reopens for trading on Monday. The measures announced by FM will surely help to stem the slide which gripped the market since the presentation of the Union budget on July 5.

However, it will be early to say that measures unveiled through the package will prove to be trend reversal as market is keenly awaiting for the two more rounds of announcement as promised by the FM at the end of the Friday’s press conference.

VK Vijayakumar Chief Investment Strategist at Geojit Financial Services said, “Withdrawal of the surcharge on FPIs is a shot in the arm for the sagging market. One can now expect reversal of the FPI selling. The market is likely to look up from now on. However, sustained rally in the market will happen only when we have visibility on good earnings growth and clear signs of reversal of the slowdown, is under way in the economy. This requires more reforms. The FM has announced that she will come back with more reforms soon. So, there is a hope."

Beginning Monday, we may see continuous slide in the benchmark indices coming to a halt for one more reason. The August expiry of the Futures & Options (F&O) is scheduled on the last Thursday of August 29. With the announcement of the package on Friday post market closing hours, the markets may see a positive gap up opening on Monday. Short sellers in the market would scramble to reverse their position as soon as market resumes trading on Monday. This trend may continue till Thursday, the August expiry of F&O. During this period, if there are some more favourable dole outs are announced as promised by FM, which are significant, it could play an important role in changing the market sentiment, opined brokers and Analysts.

Vinod Nair, Head Of Research at Geojit Financial Services said, "FPIs were selling given the risk-off mode in the global market which had enhanced in India due to higher surcharge post budget. They have sold about ~Rs28,000 crore (approximately $4 billion) since the date which can be reversed to a good level in culmination of other supportive measures like recapitalization of PSBs, transmission of rate cut and Auto. This is likely to restore some confidence in the market."

According to Harendra Kumar, managing director & CEO, Elara Capital, aggressive repo rate cut by the Reserve bank of India (RBI) has made Interest rate cycle very conducive. With the current repo rate at 6.35 per cent and more than one rate cut due in this financial year, will see for the first time after 2003, a low interest rate regime in our country. With the Central Bank insisting on speedier and quicker transmission of rate cut, its positive impact will be seen on the corporate earnings in coming quarters.

“I personally feel that we are almost close to the bottom as far as benchmark indices are concerned. Side markets may take some more to get back on track. Once the public sector banks (PSBs) lending resumes, following implementation of FM’s package announcement, the pressure on liquidity front will ease out having its positive impact”, said Harendra Kumar.

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