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Indian Equities To Lag Peers On Weak Stimulus Measures

Roshni Agarwal
·3-min read

As the stimulus doled out by the Indian government is deemed to be too low, Indian markets will lag its peers and foreign investors have begin to price in the fact. Since March lows which dragged markets to 4-year low, Indian markets have clawed back 43% gains primarily on account of huge liquidity driven by stimulus measures from global central banks.

And because of the heavily discounted prices, money poured into Indian equities.
And as per the stock exchange data, even despite flows to the tune of $1.98 billion, foreign investors have been net sellers.

"There are a lot of macro issues that make India a little less of an easy story," said Rashmi Gupta, emerging markets (EM) portfolio manager at JP Morgan Private Bank in New York.

"It has to walk a fine line as it has a higher debt-to-GDP (gross domestic product) ratio and doesn't have much room compared to some other EM economies in terms of its ability to provide fiscal stimulus," she said.

The prime problem engulfing India is the problem being faced at the core such as by poor, where migrant workers were forced to move to their home town amid Covid 19 led lockdown."People who need the help aren't the ones getting the help," said Sailesh Lad, head of active emerging markets fixed income at AXA Investment Managers in London.

"A lot of people in India live hand-to-mouth. If you don't know when the next salary is coming, then your consumption spending reduces."

Though India put forward a combined fiscal and monetary package worth $266 billion, spending commitments come to be just 1% of GDP or roughly $20 per individual.
In comparison China has been doling out over 4% of its GDP into the economy with its packages.
High debt to GDP ratio-A major woe for Indian economy

The country's debt to GDP ratio stood at 71% only early in 2020 and is only next to Brazil. Further it is higher than the levels suggested by the International Monetary Fund recommended for developing economies which are threatened due to growth and currencies.

There are expectations of a further rate cut but depreciation in the rupee may push analyst and policymakers to go for a pause.

"With the fiscal deficit threatening to cross 6 percent even in the absence of larger stimulus, and individual states also having to borrow more, it's not possible to issue a larger package," said Abheek Barua, chief economist at HDFC Bank in New Delhi.

Also, Chinese markets where this Covid 19 outbreak was seen the first after fund pumping are now trading 13% higher and have recovered all their Covid 19 losses.
"In view of the continuing decline in corporate earnings estimates, we think the market could go down before it goes up," Raychaudhuri said.

GoodReturns.in

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