Mumbai: Automakers, public sector banks (PSBs) and housing finance companies (HFCs) are likely to lead a market rally on Monday triggered by the government’s announcement of liquidity boosting measures and withdrawal of the enhanced tax surcharge on overseas investors on Friday.
While these measures are not game changers for these sectors, which are weighed down by factors ranging from bad loans to the economic slowdown, the measures will come as a relief to holders of shares of these companies and lenders, which have been battered in recent weeks, said experts.
“These measures announced by the government and expectations of more over the next couple of weeks will likely improve investor sentiment and should drive at least a shortterm bounce, as the government has given a clear signal that it acknowledges an economic slowdown and is willing to act promptly to address the issues,” CLSA said in a note.
The government announced a Rs 70,000-crore infusion into PSBs and an additional Rs 20,000-crore support for HFCs .
Market to Await Further Steps
Analysts expect the Sensex and Nifty to rise as much as 2 per cent on Monday, cheering the steps, but the market direction thereafter will depend on actions by the US and China, engaged in an escalating trade dispute.
Prabhudas Lilladher believes that the current slowdown in the economy, which is a combination of cyclical and structural issues, will take time to fade away. The latest announcements show the intent of the government to remove some of these irritants and tackle structural issues, which will go a long way toward preventing incremental damage, it said.
Analysts said investors might not jump in to buy these shares after the announcements but traders could be forced to reduce the quantum of bearish futures and options bets on them.
Gautam Shroff, co-head at Edelweiss Institutional Equities, said bearish positions in banks and auto stocks will be squeezed.
“ICICI Bank and Maruti saw the highest build-up of short positions in last week, so shorts will get squeezed there,” said Shroff. “Two wheelers, public sector banks will rise. Real estate companies will rise on hope of a package for the sector.”
Some believe that issues in the auto sector are deeper and the market will await measures such as a cut in goods and services tax (GST) rates. For the auto sector, the increase in one-time registration fees has been deferred until June 2020 and an additional 15 per cent depreciation has been offered on all vehicles acquired until March 2020. A scrappage policy will be released later.
Elara Capital said the benefit on higher depreciation is insignificant, given that a large section of truck operators have seen a sharp decline in profitability. “We see demand, and, in turn, growth reviving with a lag, based on percolation of the same to the last mile,” said Elara.
Abhimanyu Sofat, head of research at IIFL, remains bearish on auto stocks. “There will be a marginal impact because of the announcements; it will not be a game changer until we see a GST reduction and more clarity on time lines on shift to electric vehicles,” said Sofat.
The BSE Auto index is down 24.5 per cent this year compared with a gain of 1.75 per cent in the Sensex.