The government’s second economic stimulus package, along with the Reserve Bank of India’s (RBI’s) decision to further cut policy rates as well as the cash reserve ratio — the amount which banks have to park with the central bank — has shown some hope for the stock markets, say players.

Market participants are of the view that the package is likely to create demand, while keeping up the growth momentum.

Said Edelweiss Capital Managing Director Rashesh Shah: “There has been a sharp fall in industrial growth since last quarter, which is likely to be halted now. The move by the government is also positive for the markets as it will infuse additional liquidity into the banking sector, which has been worst affected in the economic crisis, bring down the cost of credit for corporates.”

Religare Asset Management Company Ltd CEO Saurabh Nanavati said, “Monetary policy announced by the RBI is up to market expectations and was already being priced in the bond yields. On the fiscal side, the government was constrained by the fiscal deficit to cut taxes directly or increase spending. Within our existing framework, they have taken the right steps of making IIFCL and the states as the intermediaries, who will transfer the liquidity from savers to borrower, which is the biggest problem currently.”

The Bombay Stock Exchange’s Sensex Index has already gained close to 3 per cent in the past two trading sessions as traders were expecting a positive package. The Sensex closed at 9,958 today and was up by 55 points.

However, a section of stock brokers are still cautious and say that things may see a turnaround too swiftly. “The rally in Sensex may not last for too long and the focus would not turn on results. The advance tax figures have suggested that results would not be too good so the markets will re-adjust accordingly,” said a head of leading Mumbai-based brokerage house.

Puneet Nanda, chief investment officer and executive vice-president, ICICI Prudential Life Insurance, said “As the effect of these measures percolates into the economy over the next few months, there will be a positive impact for both the corporate and the household sector. With interest rates likely to come off in the short run, risk-averse retail investors can take advantage of next generation insurance offerings with in-built guarantee, such as ICICI Prudential’s Return Guarantee Fund or Life stage Assure.”

The RBI today slashed its interest rates i.e. reverse repo rate and repo rates by 100 basis points, cash reserve ratio by 50 basis points.

source: business standard

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