Here comes the relief package from FM, more to follow

Here comes the relief package from FM, more to follow

Dated: 26th August 2019

Update on the Indian market:

Indian markets rallied on Monday amid weak global macros. Nifty 50 closed 2.1% higher.  The rally was driven by various announcements made by the Finance Minister on Friday evening. The details about the announcements are discussed in today’s update.  Among the sectoral indices, Financial services (4.0%), Banks (3.9%) and Media (3.6%) were the best performers while only Metal (-0.9%) ended in the negative zone.

Here comes the relief package from FM, more to follow

The Finance Minister Ms Nirmala Sitharaman, in her press conference on 23rd August 2019, announced a relief package for Indian economy. Following are the key announcements from the Finance Minister:

  • Roll-back of higher surcharge on capital gains tax for FPIs (Foreign Portfolio Investors).
  • Immediate recapitalisation of PSB (Public Sector Banks) of Rs 700bn. This can facilitate additional lending and liquidity to the tune of Rs 5000bn by providing upfront capital to PSB.
  • Additional liquidity to HFCs (Housing Finance Companies) worth Rs 200 bn by NHB (National Housing Bank)
  • Withdrawal of angel tax provisions for start-ups.
  • Repayment of pending GST refunds to MSMEs within 30 days and future refunds in 60 days.
  • Repayment of 75% of funds in contractual disputes between government/ CPSEs and private entities.
  • Launch of repo/external benchmark-linked interest rate products. The government would take further action on the development of Credit Default Swap markets soon, in consultation with RBI and SEBI.

In our view, the roll-back of higher surcharge on FPIs is a positive development for the equities market. Since the announcement of budget on 5th July 2019, the FIIs sold total Rs 292,360 mn till 23rd August 2019. We expect the selling pressure from FIIs to slow down with the announcement.

The companies from the Auto industry were demanding a GST rate cut to revive demand. The government has provided some relief like deferring the revision of one-time registration fees till June 2020, higher depreciation on purchases made during FY20, BS-IV vehicles purchased before 31st March 2020 to remain operational for the entire period of registration.

The Finance Minister has mentioned that she will announce more measures to boost the economy in the coming days. The timeline for this is not yet known. While the relief package announcement made by the government is welcome, we hope it does not get overshadowed by increasing bitterness in tariff wars between the US and China.

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