The announcement by Finance Minister on Wednesday gave an overall contour on the first phase of the fiscal stimulus. Some clever structuring of the package ensures limited immediate impact on Government spend / fiscal deficit. Sops to MSMEs could help their lenders i.e. Banks/NBFCs to improve their recoveries, write back some write offs and postpone slippages / recognition of NPAs. Liquidity relief to Discoms could mean better working capital management for power generating companies including NTPC (with its trickle-down effect on likes of Coal India). Other measures alleviate minor impediments and postpone recoveries for the Govt to the later part of the year.
Markets could on the one hand get disappointed because the immediate spend out of the big fiscal stimulus is relatively small and hence there could be doubts on whether economic growth will revive soon and in proportion to the large number of the stimulus. On the other hand, sectors like Banks / NBFC, power generating companies and sectors that have high linkages with MSMEs could see an uptick in their valuation, though partial impact was already visible on Wednesday. Worry about rating downgrade could get postponed and we may have to see the next set of announcements by the FM to get a better handle on this.