Investors welcome India’s $266 billion stimulus

Indian Prime Minister Narendra Modi’s stimulus is equivalent to 10% of the country economic output

epa08417382 An Indian man listens to Indian Prime Minister Modi's address on TV in Amritsar, India, 12 May 2020. Prime Mnister has said that 4th phase of COVID-19 lockdown will be completely new along with announcing an economic package.  EPA/RAMINDER PAL SINGH

Investors and strategists have broadly welcomed Indian Prime Minister Narendra Modi’s announcement of a larger-than-expected stimulus package worth an estimated 10 per cent of gross domestic product.

The measures are impressive in their size, should boost investor confidence in India’s ability to deal with the economic impact of the coronavirus outbreak and provide support to the currency, according to early reaction from a number of market participants. Still, further details are required, especially on how the package will be financed, they said.

Equity futures on India’s NSE Nifty 50 Index traded in Singapore climbed in early trading Wednesday and dollar-rupee one-month non-deliverable forwards retreated.

Here’s what strategists and economists are saying about the new measures:

Samiran Chakraborty and Baqar Zaidi, India economists at Citigroup said: “The size of the package likely exceeds market expectations and the details will eagerly be awaited.”

“This is likely to necessitate both additional market borrowing as well as an immediate announcement of the Reserve Bank of India (RBI) support through large OMO and may be even direct monetisation if the combined power of fiscal and monetary stimulus has to be unleashed.”

“By explicitly referring to reforms in land, labour, agriculture, legal and administrative systems and infrastructure the PM has embarked on an ambitious reform agenda to make India more productive. Bolder structural reforms in the financial sector is also need of the hour.”

“While all these measures to boost domestic capacity is welcome, there could be a more explicit protectionist bent on the trade front in the near term as India shapes up to be more self-reliant.”

Gaurav Saroliya, director of macro strategy at Oxford Economics said “Alongside monetary easing by the RBI, we think this move, the details of which are still awaited, will boost market confidence that India will be able to limit the economic costs of the lockdown, which our macro team earlier estimated at around 6 per cent of annual GDP.”

“Indian equities and the rupee have underperformed during the sell-off in March as they tend to be a reflection of India’s domestic growth expectations. The fiscal boost has come at an opportune time for India as valuations are cheap both historically and relative to the Asia ex-Japan peer group.”

Qi Gao, a currency strategist at Scotiabank said: “US dollar and Indian rupee will likely trade between 74 and 77 in the coming weeks. A fiscal stimulus package itself could provide some support to the Indian rupee.”

Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore said: “Arguably, Indian PM Modi’s announcement of a 10 per cent of GDP (Dh976 billion / $266bn) COVID stimulus is a big deal compared to the earlier 0.8 per cent of GDP fiscal boost.”

“But with details awaited, it is unclear if this includes the already announced RBI credit/liquidity measures worth some 2.5 per cent of GDP. And so, the precise [quantum and dispersion] impact across sectors/industries remains to be seen, while the question of how it will be financed may prove to be a bugbear.”

Kaushik Das, India chief economist at Deutsche Bank said: “The 10 per cent of GDP economic package is inclusive of the various liquidity measures announced by RBI earlier and the previous fiscal package announced on 26 March (1.7tn rupees; 0.8 per cent of GDP); so we need to see what the incremental package size is excluding the support from earlier measures.”

Mahesh Nandurkar and Abhinav Sinha, equity analysts at Jefferies Financial Group said: “The headline no of the gross fiscal package of 20tn rupees / 10 per cent of GDP is impressive. This leaves a space of ~10tn rupees / 5 per cent of GDP for incremental announcements.”

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