Bulls faced a major setback Thursday amid indications that the government may not come out with a stimulus package for sectors hit by the slowdown. The weakening rupee, which hit its lowest level in eight months, and lacklustre global cues further weighed on investor sentiment.
The 30-share BSE Sensex plunged 587.44 points, or 1.59 per cent, to finish at 36,472.93, while the broader NSE Nifty slumped 177.35 points, or 1.62 per cent, to 10,741.35. The rupee, meanwhile, fell to an eight-month low of 71.81, losing 26 paise against the US dollar as plunging equities and sustained foreign fund outflows weighed on sentiment.
The market took note of the statement of Chief Economic Advisor KV Subramanian that the Indian economy does not need a fiscal stimulus to tackle the ongoing economic slowdown. “Policymakers need to be careful while deciding on any fiscal stimulus as a way to boost economic growth,” he said, adding, “we can’t expect the government to intervene every time some sectors go through sunset. Not all sectors are doing bad, some are doing well.”
Subramanian said using taxpayers’ money to bail out companies going through a ‘sunset’ phase will create moral hazards and such a step is an anathema to the market economy.
Power Secretary Subhash Chandra Garg, who was the Finance Secretary till July, also said low interest rates and availability of credit to private sector are better tools than a fiscal stimulus. Garg’s assessment that India’s GDP growth in the first quarter of the current fiscal could be in the range of 5.5-5.6 per cent further affected the market morale. The GDP growth in the fourth quarter of the last fiscal came in at 5.8 per cent, caused by slowdown in key sectors like agriculture, manufacturing and industry.
These comments dashed hopes of some sort of a stimulus package from the Centre to boost growth and revive flagging consumer sentiment, analysts said.
Market movement hinges on govt steps
With many sectors facing slowdown and growth declining, stock markets were expecting a package from the government to stimulate demand and revive the economy. Investors are now nervous as senior officials are opposing a stimulus package. The big worry is: will the slowdown deepen further? How will the government tackle the slowdown? The movement of the market will hinge on government measures.
Vinod Nair, head of research, Geojit Financial Services, said, “Despite Sebi relaxing FPI norms and likely stimulus from the government to push the economy, the market continued its descent. The outlook for auto, consumption and realty are still cloudy.”
Ajit Mishra, vice president—research, Religare Broking, said, “The recent fall is a result of growing uneasiness among the participants as they’re keenly awaiting some action from the government to boost the market sentiment.”
According to the minutes of monetary policy committee released on Wednesday, RBI Governor Shaktikanta Das had said economic activity has shown signs of further weakening since the last MPC meeting in June 2019.
Globally, markets were jittery ahead of comments from Federal Reserve chairman Jerome Powell at Jackson Hole, Wyoming, US. Shanghai Composite Index and Nikkei ended on a positive note, while Hang Seng and Kospi settled in the red. Equities in Europe were trading lower in their respective early sessions.