Fiscal package positive for market sentiment

MUMBAI: The blend of government���s fiscal spending proposals and Reserve Bank of India���s (RBI) interest rate cuts announced over the weekend to counter India���s economic slowdown, amid a global recession, may lift investor sentiment early this week.

Though the fiscal stimulus package has fallen short of expectations of the stock market and industry, fund managers said that the market may cheer the measures, as they have come along with rate cuts, which is considered critical to revive consumer spending.

A positive US equities closing on Friday, even after the economy���s worst monthly job losses in 34 years, may add to the overall positive sentiment.

���The combination of interest rate cuts and the fiscal programme is positive for market sentiment in the short-term, though their impact on the economy would be seen only in the medium-term,��� said Birla SunLife Mutual Fund���s A Balasubramanian.



Shares of infrastructure, mainly road and port, and textiles companies may decline, as it is believed that the measures announced for these sectors in the package have been disappointing. Though there is little for the automobile sector, too, in the fiscal stimulus plans, investors in these shares, especially two-wheelers, may take positive cues from the interest rate and the fuel price cuts late last week.

Shares of iron-ore exporters, including Sesa Goa, could rise after the government removed the export duty on iron ore fines and reduced it on lumps. The export duty was seen as a serious threat to iron ore exporters, especially when China, which is the biggest importer of iron ore, is looking to cut steel production.

A section of the market is worried about the impact of the fiscal stimulus programme on India���s waning financial health, as it comes when the government is already loaded with costs such as higher salaries for central government employees and expenses outside the balance sheet, including subsidies.

���Though this fiscal package is much-needed, there should be more money supply to avoid depriving the private sector and consumers of enough funds, in case the government plans to finance the spending through public debt,��� said a fund manager at a foreign mutual fund���s Indian arm. Large foreign funds closely watch the health of a government before investing in the stock market of the country.

Morgan Stanley, in its strategy note, said, ���India needs pump-priming (government���s measures to stimulate economy) without the use of public debt, more liquidity on the balance sheet of banks, better relative valuations, earnings downgrades, global calm leading to a better balance of payment (BoP), a good election result to ensure smooth policy action in the coming years and quick corporate restructuring focused on delevering operations to limit the earnings damage.���