Is there a nagging worry behind the stocks rally on Dalal Street ?
Published On: Tuesday, June 2, 2020 | By: Team KnowMyStock
Behind the stocks rally seen on Dalal Street since late April lurks a nagging worry about growth prospects of the economy, which puts the market at risk of a sudden U-turn. A top Nomura analyst on Tuesday flagged this worry, saying that the equity risk premium remains high, which shows that investors are a worried lot. “India needs a big push from the government to revive the COVID-19-hit economy,” say experts. The government needs to spend on infrastructure in a big way to revive growth as corporates are not investing at this point in time. This came a day after Moody's Investors Service downgraded India’s sovereign credit rating for the first time in more than two decades. The latest official data showed the economy grew at 4.2 percent in FY20, the slowest rate in 11 years.
"The recent stimulus announced by the government does not provide immediate relief to the economy. “Essentially, the total impact of the stimulus is just 0.8 per cent of GDP,” the experts say, adding that the banking structure has a lot of issues due to anaemic credit growth.The direct stimulus was just 12 per cent of the overall Rs 20 lakh crore package.
The market expert expects a deterioration in revenue outlook going ahead.Tamil Nadu, Delhi and Gujarat – which have nearly 70 per cent of coronavirus cases – contribute 35 per cent to India’s GDP.
Therefore, the spread of the virus is a headwind to economic growth. “A sharp deterioration in economic growth outlook presents downside risks to earnings. We are fairly negative from a macro point of view,” experts opinied.
Tags: stocks rally growth prospects GDP
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