Markets rally on hopes of fiscal stimulus to spur growth

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Despite apprehensions about impact on volumes due to the new margin system in trading that kickstarted on Tuesday, Indian markets ended higher, driven by expectations of further government stimulus package following the sharp contraction in GDP in the June quarter. The BSE Sensex ended at 38,900.80, adding 272.51 points or 0.71%. The 50-share index Nifty closed at 11,470.25, up 82.75 points or 0.73%.

Analysts said that the Supreme Court verdict on adjusted gross revenue (AGR) dues and growth in auto sales for August eased some pressure on markets. Also adding to the cheer, India’s PMI manufacturing data expanded for the first time in five months in August. India’s PMI for manufacturing rose to 52 in August from 46 in July. A figure above 50 indicates expansion, while a sub-50 print signals contraction.

“After the dismal GDP data, market participants are now hoping for more stimulus package announcements from the government. Meanwhile, participants would keep a close watch on India-China border tension and global markets for cues,” Ajit Mishra, VP – Research, Religare Broking Ltd said.

India’s gross domestic product (GDP) in April-June contracted 23.9%, the steepest decline in Asia excluding Japan, reflecting a collapse in domestic demand due to one of the most stringent lockdowns due to covid-19. This has led to rise in hopes of a more aggressive fiscal response from the government to tackle the current economic status.

“In second half of FY21, we expect normalisation of activity to continue with exports leading the recovery. The key variable to watch is the size and timing of the second round of fiscal stimulus,” Edelweiss Securities Limited. The brokerage firm has revised down FY21 GDP forecast to -6% YoY versus -4% projected earlier given the Q1FY21 GDP miss and much slower unlocking, leading to slower normalisation in Q2FY21 as well.

Radhika Rao, economist at DBS Bank said, “Full year central and state government deficit is expected to exceed 12% of GDP. We still see room for another a more targeted fiscal boost in second half of FY21, but limited bullets suggest the support package is unlikely to effectively boost near-term demand.”

However, trading was chaotic on Tuesday as the new margin system introduced by Sebi rolled out for the first time amidst concerns that brokerages and depositories weren’t fully prepared for the shift in transaction. Delayed data delivery, delayed in creation of pledges, lack of collection of early pay-ins by exchanges, small brokers getting disabled in the early hours of trade were some of glaring issues faced in trades as an ill-prepared system went live.

Traditional brokerages such as HDFC Securities and ICICI Securities issued communications to their clients that they disabled the facility to create fresh e-margin positions for next few days considering the difficulties in the new pledge-re-pledge system. E-margins is a product which allows clients to buy delivery based stocks with margin as low as 25%.

“We had a chaotic trading today. Since we did not receive securities data from depositories, trading was done based on Friday’s data. CDSL released its securities data around 1:30 pm. Most clients on our platform faced issues in completing transactions,” Shankar Vailaya – Director & Head Of Network, Sharekhan by BNP Paribas said.

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