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Booster shot for the economy and markets, but global risks are rising
There were three key takeaways from the Finance Minister Nirmala Sitharaman's Friday announcement. One, the government is listening and it cares about the economy. Two, it wants to stick to the fiscal deficit target. Three, while the government’s measures are a signal that it stands ready to help, it won’t be able to do much. The inability to have a looser fiscal policy reduces its ability to stimulate demand. But will its policy of trying to lower the interest rate alone work? In any case, for the markets, global risks as rising with trade tensions rising between the US and China. Click here to read more on what the FM’s stimulus measures means for the economy and the markets.
Auto sector needs more sops to get back on track
Investors will be hanging on to the government’s assurance that more stimulus measures will follow. Certainly, investors in auto stocks will. The current measures include a clarification that BS-IV vehicles can run for their entire period of registration, deferring the increase in registration fees to June 2020 and doubling of depreciation to 30 percent for vehicles bought till 31 March 2020. The government also said it will consider a scrappage policy and it shall also lift the ban on the purchase of new vehicles by departments. But will these steps be enough to boost demand? Click here to read more.
Will more measures to ease access and cost of credit help?
With a depleted fiscal arsenal, the government’s biggest hope to stoke demand is lower interest rates and ease access. It has tried to do in this in various ways from promising to infuse Rs 70,000 crore into banks upfront to pushing state-owned banks to link lending rates to external benchmarks to aid transmission. But there is much risk aversion in banks and distrust in the market about the quality of NBFC balance sheets. Will these confidence-building measures be enough for the banks to overcome this trust deficit? Click here to read more.
Infrastructure tweaks helpful but more needed
For the infrastructure sector, the government has proposed to expedite delayed payments from the government to contractors, get the Cabinet Secretariat to monitor the payment of 75percent of arbitration awards in the case of disputes, and form an inter-ministerial task force to oversee the development of modern infrastructure over five years at the cost of Rs 100 lakh crore. The last measure had been mentioned in the Budget. The question is where will the money come from? Will the other two measures ease the funding concerns of the sector? Click here to read more.
Picks from our technical analysts
HCL Technologies: This stock is seeing a continuation of its bullish trend. Will it sustain? Click here to read how to trade HCL Tech futures profitably.
ICICI Prudential: Shares of this company are seeing a rising trend with decent support. How should one trade this stock now? Click here to find out.
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Updated Date: Aug 26, 2019 13:36:32 IST