Mr. Varun Lohchab, Head Institutional Research, HDFC Securities
FM unveiled 1st tranche of second stimulus/relief package yesterday to alleviate Covid-19 induced stress. Govt has not taken meaningful direct "principal" role but relied largely on indirect route in an attempt to preserve govt finances - "facilitating" liquidity (one of the 4 "L" focal points) to multiple segments and not resorted much on fiscal transfers. 13th May announcements aggregate to ~INR6trn (~3% of GDP), but the immediate impact on public finances is limited at 0.2% of GDP and accounts for 7% of yesterday's announcements. The government is expected to announce measures on other 3 "Ls" i.e. Land, Labor and Laws over the next few days. Today's announcements were largely aimed at MSME, NBFC, Construction, Real Estate and Power sectors. We expect some key land reform measures to facilitate infra creation.
INR13tn of package done, INR7 trn remain; expect some key reforms as well: Adding earlier CoVid-19 related measures of both RBI and government, the package (liquidity+fiscal) heretodate cumulates to ~INR13trn (~6.5% of GDP), with remaining INR7trn worth of stimulus to be announced over next few days. In addition to monetary/fiscal measures the government is pivoting around CoVid crisis to announce some structural reforms and Ease-of-Doing business measures, which are ultimately aimed at raising India's self-reliance quotient and making it a bigger contributory in global supply chains. We await details of further tranches over next few days to fully assess the nature and efficacy of the stimulus measures and the impact on government finances.
Sharp focus on MSMEs both through liquidity and reforms: There was a strong focus on MSMEs which accounted for INR3.74trn (~1.9% of GDP) of announcements. The standout measure was to provide 100% credit guarantee for loans given to MSMEs. This should urge banks into action and start deploying surplus liquidity to MSMEs. The amount is sizable at INR3trn (~17% of o/s MSME credit on Dec-19) and should help liquidity stressed MSME segment, even though their demand for fiscal handouts have not been met. The broadening of MSME definition should also increase universe of likely beneficiaries. FM has also mandated release of MSMEs receivables from Govt and CPSEs within 45 days, which should lower working capital needs. AXSB, AUBANK, CUBK, DCBB, FB and KVB are key beneficiaries.
Other focus areas: NBFCs, Power, Construction and Real Estate: In addition to RBI's TLTRO, the govt is attempting to push more credit towards fund-starved NBFCs with a fully guaranteed INR300bn special liquidity scheme for investment grade debt paper of NBFC/HFC/MFI + a 20% partial credit guarantee scheme of R450bn for investments in AA and below rated & unrated bonds/CPS. While 100% GS should see strong response, the PCGS may not be fully utilized given the prevalent risk aversion and assessment of >20% LGD towards lower rated NBFCs. Key beneficiaires: SHTF, MMFS, CIFC and LICHF. Another key liquidity measure was to provide INR900bn liquidity support to power discoms through PFC/REC. This should help ease liquidity worries for Gencos and Discoms. For RE and construction, govt proposes 6 month extension relief which though does not reimburse costs but still help to invoke Force Majeure clause and mitigate delay penalties.