Govt may widen stimulus scope after RBI’s Rs 1.76 trillion bounty

While announcing the first stimulus package to revive growth on August 23, Finance Minister Nirmala Sitharaman said it was ‘only the start’ and one more set of announcements, focused on the sluggish real estate sector, would be announced this week.

The promised second instalment of a stimulus package to boost the economy that was to be announced by the middle of this week may be delayed ‘a bit’, two government officials said on condition of anonymity.

This is because the government is reworking and expanding the package after receiving a windfall gain in the form of a transfer of dividend and surplus by the Reserve Bank of India (RBI) on August 26, they added.

This instalment was supposed to focus on reviving the real estate sector. It could now expand its focus to textiles, infrastructure and tourism, and even consider tax incentives, maybe even a reduction in the Goods & Services Tax (GST) rate on automobiles, a demand voiced by the auto industry.

"The government is considering expanding the package to go beyond the real estate sector to include other sectors that are facing a slowdown," one of the two officials cited above said.

While announcing the first stimulus package to revive growth on August 23, Finance Minister Nirmala Sitharaman said that it was ‘only the start’ and one more set of announcements, focused on the sluggish real estate sector, would be announced this week.

The government is reassessing available resources in the light of RBI’s move to transfer Rs 1.76 lakh crore in 2019-20 (the money was transferred as of Monday, media reports said), and is reworking a more comprehensive second package to boost the economy that could be announced by the end of this week or next week, the officials said.

Sitharaman said in Pune that the government is yet to decide how to utilise the money. The Rs 1.76 lakh crore the government has received from RBI is double the budgeted amount of Rs 90,000 crore it hoped to. Part of this surplus will certainly be spent on the revival of the economy, the officials added.

HT learns that among the things being considered are capital investments and fiscal incentives to sectors such as real estate, textiles, infrastructure and tourism. There’s also an argument that the government should keep some of the money as a cushion for any exigency, for example, any slippage in revenue collection, the officials said.

The money will give the government the confidence that it can meet the fiscal deficit target of 3.3 percent of the gross domestic product in the current financial year, they added.

The first official said that the indirect tax collection in the current month is around Rs 90,000 crore as on date, and unlikely to touch the Rs 1 lakh crore mark, an impact of the current slowdown.

The Indian economy grew by 5.8 percent, the slowest in five years, in the January-March quarter of 2018-19. GDP growth has declined consistently since last year.

The auto sector, a weathervane of economic sentiment and also industrial health, has been especially hard hit with passenger car sales in July falling 30 percent compared to a year ago.
Officials said a final decision on the prudent use of the surplus from the RBI will be taken soon by the Finance Minister in consultation with top bureaucrats. The decision will be announced after consultation with the Prime Minister’s Office (PMO), the officials added.
Some experts in the government are not in favour of using the money for tax sops and instead want it to be used for capital investments.

Pronab Sen, India’s former Chief Statistician, said, "RBI’s Rs 90,000 crore was already budgeted, so Rs 86,000 crore is left [surplus]. Out of this, about Rs 54,000 crore is coming from the capital reserve, which will not be available the next year. Under these circumstances, it is not prudent to make the current expenditure, because the same resources will not be available next year."
Niranjan Hiranandani, President of the National Real Estate Development Council (NAREDCO), said the stimulus package announced by the Finance Ministry on August 23 would "infuse much-required liquidity" in the system that will also help the real estate sector, but the government should create a fund to bail out stressed companies.

"It doesn’t matter if it [the announcement] is delayed by a day or two. Even one-week delay will not make any difference. But, there is an urgent need to create a stressed fund to clear about three lakh incomplete projects in NCR {National Capital Region} alone as these projects are stuck due to fund crunch and banks are unwilling to lend," he said.

Stimulus package: PSU banks, auto to hog limelight; about 30 stocks to benefit

Measures such as removal of surcharge on foreign portfolio investors (FPI) and removal of CSR violation as the criminal offence will cheer market participants

Finance Minister Nirmala Sitharaman on August 23 unveiled a slew of measure to boost growth, increase liquidity, and revive consumer and investor sentiment in the Indian economy.
The announcement couldn’t have come at a better time as the Indian businesses have reported a muted earnings in June quarter. Coupled with a trade war that could lead to the global recession and corporate governance issues, it has dented sentiment.

Measures such as removal of surcharge on foreign portfolio investors (FPI) and removal of CSR violation as the criminal offence will cheer market participants.

"The withdrawal of an additional surcharge should help shore sentiment amongst foreign investors. The tax situation had made India less attractive than our peers in the emerging markets space. FPIs have been withdrawing money from the Indian capital markets ever since the budget, this should slow down and hopefully stop the outflow from Indian markets," Nikhil Kamath, Co-Founder & CIO, Zerodha told Moneycontrol.

"A reduction in the LTCG and STCG should also aid sentiment in the short-term. The slowdown in the industry looks systemic, and while this could be a good start to stimuli, a lot more has to be done to turn the economy around," he said.

Deferring the increase in registration fee till June 2020 on new vehicles, the decision to review scrappage policy and linking vehicle loan rates to repo rate will help in reviving the auto sector.

"Delating the revision of one-time registration fees till June 2020 is a very important boost to the sector as this would have had a significant impact on demand in the short term. The costs would have gone significantly up,"  Ashwin Patil, Senior Research Analyst (Auto Sector) at LKP Securities said.

"The step is positive for 2-wheeler, 3-wheeler and personal vehicles. The revision of depreciation rate for all vehicles—from 15 percent to 30 percent for vehicles purchased up to March 2020—will give a big boost mainly to the commercial vehicle (CV) industry considering the extreme stress on the manufacturers, dealers, buyers and the entire value chain of CVs," he said.

Measures for the banking industry—immediate infusion of Rs 70,000 crore in public sector banks, additional liquidity support to housing finance companies and establishing task force to finalise Rs 1 Lakh crore infra investments—will go a long way in reviving investor and consumer sentiments, say experts.

“Upfront release of Rs 70,000 crore to PSU banks would create credit expansion to the tune of Rs 5 lakh crore. Credit growth of PSU banks will get a sizeable boost,” Anusha Raheja at LKP Securities told Moneycontrol.
“Banks have agreed to transmit the reduction of repo rate into credit markets by reducing their MCLR rates. Credit demand should get some boost and lower interest rates will also be beneficial for NBFCs,” she said.

Raheja further added allaying concerns of the auto sector should also be helpful for banks and NBFCs in general.

Vinay Pandit, Head - Institutional Equities, at IndiaNivesh Securities Limited

We expect banks, NBFCs, housing finance companies, auto and consumption stocks to come back in flavour. We continue to be positive on major automakers—Maruti Suzuki, Hero Motocorp, TVS Motor and Bajaj Auto.
Among the consumer durables companies, we are positive on Blue Star as our key pick followed by Voltas. We are also positive on RBL Bank, ICICI Bank, SBI and Axis Bank. Banking stocks will see a strong relief rally in the next week.

Mustafa Nadeem, CEO, Epic Research

The surprise was the recapitalisation of banks that was not expected at this point in time. We rather expected sector-specific measures, which would have been related to automotive, consumer space or so. PSBs like SBI, BOB and PNB may see some incremental improvement in their net-interest margins.

Romesh Tiwari, Head of Research, CapitalAim
Markets will surely appreciate these much-needed decisions. Tata Motors, Ashok Leyland, DLF, SBI and other public sector banks will see a good rebound. The second half of tomorrow's market will be interesting as that will decide the sustainability of the bounce of August 23.

William O’Neil India

According to O’Neil methodology, we will wait for the Nifty to close above August 23 low of 10,638 for two more days to shift the market status to a rally attempt, after which we can take fresh positions.
According to our methodology, stocks of Pidilite, HDFC Life, SBI Life, ICICI Bank, Berger Paints, Asian Paints, Marico, Dabur, HUL, TCS and Infosys stand well.

Prabhudas Lilladher

We recommend investors to use these turbulent times to build a portfolio of companies with moats in their business and ability to withstand technology disruptions. Maruti, Ashok Leyland, L&T, Siemens, HDFC Bank, Cholamandalam Finance are likely to be direct benefices of the stimulus package from the Finance Minister.

Finance ministry amends PMLA Act to offer clarity on digital KYC

PMLA is the means through which lenders, investment platforms and telecom companies are authorised to capture customer details.

The finance ministry has amended the Prevention of Money Laundering Act, 2002, to clarify the various modes of capturing customer details electronically, in what could potentially change the way regulated entities such as banks and telecom companies capture these details completely.

PMLA is the means through which lenders, investment platforms and telecom companies are authorised to capture customer details before onboarding them on to their platforms.
While the government has not spelt out video KYC through the amendment, the move clears the path for regulators like the Reserve Bank of India or others to come out with such guidelines, industry insiders said.

Further, the changes in the Act will also enable customers to submit Aadhaar details to companies voluntarily, thereby paving the way for remote onboarding, which had stopped after a Supreme Court order last year.

“The notification from the government brings in the different modes through which full customer details can be captured, Aadhaar eKYC, electronic documents which are digitally signed and digital KYC,” said Wriju Ray, cofounder, IDfy, a Mumbaibased digital KYC solutions provider.

The amendments have also added electronic documents besides physical documents, which will now allow regulated entities to capture full customer details through eKYC as well, removing the need for physical papers and photos.

These changes are an extension of the multiple changes to the KYC rules that have been brought in by the telecom regulator and the banking regulator, this is formalisation of the entire process, said
 Dipti Lavanya Swain, partner, HAS Advocates.

“This will pave the way for documents to be accessed from digi-lockers as well, which can give a huge boost to remote lending and frictionless digital customer onboarding,” said Aditya Kumar, founder, Qbera.

Digilocker is a government backed online document storage service through which digitally signed and verified documents can be stored by citizens to be used digitally for multiple purposes.
Besides the remote KYC process, the amendment has also cleared a digital KYC process for offline checking of documents where an agent of the company visits the customer in person.

PMO takes stock of tax surcharge impact on markets and FPIs

Senior bureaucrats in the prime minister’s office (PMO) have met top finance ministry officials to discuss the foreign portfolio investment (FPI) surcharge, which has roiled the market, a government source said.

The state of economy that is causing a great deal of concern was also talked about in the meeting held on August 1, the official said.

"Various suggestions and submissions made by FPIs were taken up for discussion. FPIs have made submissions to the finance ministry and the PMO (prime minister’s office) to tweak the surcharge law, if not a direct rollback," the official said.

FPIs, through law firms, told the finance ministry that it was impractical to convert trusts into companies, the official said.

Suggestions for tweaks include a one-time tax-free transfer of shares to special purpose vehicles, self-declaration by FPIs, and higher tax only on incomes of direct individual beneficiaries, among others.

The introduction of the surcharge on higher income brackets announced in the Budget by finance minister Nirmala Sitharaman has led to a brisk selloff by FPIs. A higher surcharge will see many of the overseas portfolio investors paying more in taxes.

FPIs sold Rs 11,740 crore worth of equities in June, the highest outflow since October 2018.

In her Budget speech on July 5, Sitharaman proposed an additional surcharge on “individuals and trusts” earning more than Rs 2 crore and Rs 5 crore, respectively. The announcement triggered an exodus of FPIs from the country.

During a discussion on the Budget in Parliament on July 18, the minister suggested that FPIs consider the option of structuring themselves as companies rather than trusts to avoid paying the new surcharge.