As regards a pick-up in key economic indicators, Madan Sabnavis, chief economist at CARE Ratings also shares a similar view. While the various measures announced by the government would aid sentiment in terms of improving overall economic activity, he expects its impact to be spread over a period of time.
“The near-term impact would be limited. The improvement could begin to emerge only in the next financial year and would be contingent on a sustained pickup in consumption demand, which in turn, could stimulate investment,” Sabnavis says.
On their part, foreign portfolio investors (FIIs) with a net investment of Rs 68,517 crore ($9.8 billion) and domestic institutions that put in a net Rs 65,391 crore continued to repose their faith in India and equities as an asset class during Samvat 2075.
“Corporate tax cut has changed the market’s level. While there is an argument for a rerating — on growth, relative competitiveness and the cost of capital — the US’ experience with tax cuts, the economy and markets
is more sobering. We believe, it does provide a risk appetite uptick for businesses — a pre-requisite for acceleration — but not enough to factor it in, yet. See a modest market upside over the next year (up 8 per cent),” believes Aditya Narian, head of research for institutional equities at Edelweiss.
Rate cut to the rescue?
Most experts see the RBI continuing with its accommodative stance. Nomura, for instance, expects a 15 basis point (bps) cut in repo rate to 5 per cent by the central bank in its next policy review in December. Indranil Sen Gupta, director and India Economist at Bank of America Merrill Lynch (BofAML) expects more policy response from the government to stimulate demand and an aggressive 25 bps cut by the RBI in its December meet.
“The government may cut income tax to stimulate demand if the on-going Diwali festival demand turns out to be really weak. Given that the corporate tax rate cut has already cost the fisc 0.7 per cent of GDP, the bar for an income tax rate cut remains very high,” he wrote in a recent co-authored report with Aastha Gudwani, their India economist.