I was skeptical with the title of the post as to whether it should be ‘aid’ or ‘help restore’ instead of ‘Accelerate’, but then I realized that being the start of a new year and all, it won’t help to have some positive vibes going.

It’s a no brainer as to why the governments all around are doing all they can to revamp their fiscal policies.The mortgage crisis and the US Recession has acted as an eye-opener to the whole world, though I am still not sure whether US is actually learning much from it.

It brings to my memory a very famous phrase “ Don’t fix something until its broken”.But, given the recent events(read the US Recession) I think its better to ensure that it never comes to fixing things or rather, regulate it so that it does not come to a breaking situation.

The Governments all around have been vociferously trying to infuse liquidity into the financial systems by the ways of interest rate cuts and huge fiscal stimulus packages aimed at ailing the corporate sector. India hasn’t been lacking behind.

Infact, Reserve bank Of India(RBI) has introduced more liquidity into the system in the last 3 months than it actually did it in the past 2 years.

This statement alone should be enough to signify the kind of financial crisis we are facing. India has always maintained a stance projecting itself as a Globally Insulated Economy, meaning it is de-coupled from the global finance environment. But, the results are for everyone to see. We have been hit pretty bad from the global turmoil as have been other countries.


THE ROAD TO RECOVERY

INTEREST RATE CUTS

That being said, the last few months have seen a lot of activity in the financial sectors specially the slashing of interest rates,repo rates etc.These have been aimed to provide private as well as public banks to maintain their liquidity adequacy along with ailing the corporate sector to acquire loans at a lesser interest rate.

The various other policies aimed at keeping the liquidity afloat are

• Creation of a special financing entity to provide liquidity support against investment grade paper to non-banking finance companies. This window is expected to provide liquidity to the tune of 250 billion rupees.

A lot of banking policies have been revamped and added in the Second Stimulus package to ensure that India maintains a growth rate of around 7% a year.

STIMULUS PACKAGES

The Second Stimulus package announced on Staurday came as sigh of relief for the banking and the Coporate Secotr ,though only time will tell if the Tax-Payers money is going to be utilized effectively.This stems from the fact that US Bailout packages haven’t shown any great signs of success.

The saliet features of the Seond Stimulus have been documented at various places and I just thought of linking some of these points to the Sectors they might influence.After all, Equity Related instruments can be made wisely if we do understand the factors affecting them

The various pointers from the Second Stimulus are

A) Ease foreign borrowing rules for firms in the infrastructure and real estate sectors, and raised the foreign investment limit in corporate bonds to $15 billion.

The Benefactors::

• Real Estate and Infra Stocks Like GMR Infra,Jaypee Asscociates,Unitech.Infact,Unitech has been ascending the stock charts with good volume on the wake of the first stimulus package and a second stimulus should boost its growth further.

B) A package to recapitalise state-run banks to the tune of 200 billion rupees ($4.1 billion) in a 2 year time frame.

The Benefactors::

• Medium scale PSU’s like Dena Bank,Andhra Bank.Infact, a leading brokerage firm has put a BUY on Dena Bank with a near term target of 41-42 Rs.

C) An across-the-board cut of 4% in ad-valorem Cenvat rate except for petroleum products. Also, the ban on export of Cement has been removed.

The Benefactors::

• I don’t follow Cement Sector so I don’t have any particular Stock to recommend. But this should allow the Cement Players to increase their profit margins and get their inventories rolling by exporting the Surplus and gaining some dollar revenue.

D) In order to give a boost to the corporate bond market, FII investment limit in rupee denominated corporate bonds in India would be increased from US $ 6 bn to US $ 15 bn.

The Benefactors::
• This should boost the Stock Markets given that the FII’s actually have enough money to invest in Indian Bonds.FII”s are supposedly the biggest buyers in the Stock market and Blue Chip Stocks like L&T,Infosys are always on their radar.

The Second Stimulus is a lengthy document with a big list of policies and the fiscal measures drafted to keep the India growth Story on track.I haven’t had a chance to read enough and frankly, don’t understand enough to write about it.The ones I did understood a bit and could actually work out their impact of Money Wise Investment have been put here.Hoepfully,a shall be able to add to the list as and when I grow my knowledge.

Do you think That these frequent bank rate cuts and Stimulus package will be able to maintain the India Growth Story?
What are the Stocks you would recommend in the wake of the Second Stimulus package?

Please share your views here and I will be glad to update the post with your views


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