Stocks in India soar after Modi pledges $265bn package

Bloomberg

Stocks in Asia’s third-largest economy jumped the most in almost two weeks after Prime Minister Narendra Modi said his government will spend a total of 20 trillion rupees ($265 billion) to help India weather the fallout of coronavirus pandemic.
The S&P BSE Sensex index gained 2.5% to 32,164.6 as of 11:13 am in Mumbai. The Nifty 50 rose 2.5%. The package amounts to 10% of India’s gross domestic product, Modi said in a televised address to the nation, without giving details.
“The fiscal spending package could very well reset the tone of the market,” said Amit Khurana, head of equities at Dolat Capital Market Pvt in Mumbai, “A lot will depend on the details as they emerge over the next few days, including how much is fresh stimulus.”
Before Tuesday’s announcement, the government had committed less than 1% of GDP, lower than many major economies, to contain the damage from the pandemic, even as economic data deteriorated and infections increased in an already fragile economy. The new package will amount to 5%-plus of GDP and part of that could be restatement of the existing plans, Jefferies Financial Group Inc.’s Mahesh Nandurkar wrote in a note.
Barclays Plc. estimates that 9 trillion rupees of measures have already been undertaken and there’s space for another 10.7 trillion rupees of spending or support. Additional borrowing and the recent increase in fuel tax has opened up room for the government to spend close to 1.9 trillion rupees after factoring in the loss in revenue, it said.
Sovereign bonds reversed losses as traders hoped the central bank will step in to support the debt market and that a big chunk of the stimulus may not lead to direct cash outgo. The 6.45% 2029 note yield fell 4 basis points to 6.13%, after rising 12 basis points earlier. Yields rose by the most in thee years on Monday after the government announced a 54% jump in federal borrowing.
“The market seems extremely confident of substantial RBI intervention,” said Naveen Singh, head of fixed income at ICICI Securities Primary Dealership Ltd. “Whether RBI overwhelms or underwhelms in their response is yet to be seen.”
A major part of the fiscal package may be in the form of loan guarantees and equity infusion that won’t require direct spending, according to Edelweiss Securities Ltd.
The Reserve Bank of India has since March injected more than $50 billion into Asia’s third-largest economy, or more than 3.2% of GDP, while Finance Minister
Nirmala Sitharaman had
offered $22.5 billion of aid on March 26.
“Markets are keenly looking forward to details of financing package, and there’s a thinking that additional burden may not be that huge,” said Anoop Verma, vice president for treasury at DCB Bank Ltd. “There’s a belief that excess banking system liquidity and the RBI will support the market.”