Finance Minister Nirmala Sitharaman’s announcements pertaining to revival of the economy Friday last may have improved sentiments and might augment liquidity in the system, but it will take time for the current slowdown to fade away.
Any further job loss is expected be curbed and consumer spend in the upcoming festive season will decide the quantum of bounce-back in the economy and the fortunes of companies affected by the slowdown.
While analysts are unanimous about the positive impact of the announcements on the economy, they feel that revival would be a gradual process.
“We believe that the current slowdown is a combination of cyclical and structural issues and will take time to fade away. The latest announcements [by FM] show the intent of the government to remove some of these irritants and structural issues, which will go a long way in preventing incremental damage,” said Amnish Aggarwal and Amulya Channa, analysts at Prabhudas Lilladhar.
Raises hopes
“Although we don’t expect these measures to boost sagging rural demand and offset the impact of widespread floods, it raises hopes of recovery from the third quarter of Y20,” they said in a report.
Analyts expect markets to react positively to these moves and recommend investors to use these ‘turbulent times’ to build the portfolio of companies with ‘moats in their business and ability to withstand technology disruptions’.
The government’s intention and willingness to take feedback and act promptly may offset the pessimistic market narrative, felt analysts at Mototal Oswal Financial Services Ltd (MOFSL).
“Timing-wise, it has come just ahead of the beginning of a long festival season and may boost consumer sentiment. Expectations of more measures over the next two weeks will likely drive a short-term bounce after the sharp correction post budget,” Gautam Duggad, head of Research, and Siddharth Khemka, head-Retail Research, MOFSL, said in a report. “That said, we believe that a durable pick-up may have to wait until earnings recover,” they added.
Though the measures announced by the FM will result in more sales of all class of vehicles, the auto sector will take time to come out of the woods.
According to a report by Fitch Ratings, fiscal FY20 will see a decline in auto sales volume, “... although volumes may stabilise in the coming quarters due to government’s focus on improving liquidity at lenders and recent measures to revive auto demand.”
