Over the past few days, bears were on the loose in the financial capital thanks to mixed views from the national capital about slowdown fears and expectations of a government stimulus.

“The possibility of a situation where profits are private and losses are socialised is basically anathema to the way market economy functions,” Krishnamurthy Subramanian, chief economic advisor to the government, was quoted as saying by an IANS report on August 22.

Later, Rajiv Kumar, vice chairman of NITI Aayog, termed the stress in the financial sector as “unprecedented in the last 70 years” and called on the government to take extraordinary steps to tackle the economic slowdown.

Needless to say, investors were confused, as declining indices show. When trading ended on August 23, the S&P BSE Sensex and the Nifty 50 closed at 36,701.16 and 10,829.35 respectively—649 points (-1.7%) and 218 points (-2.0%) lower compared to 37,350.33 and 11,048.8 a week ago.

The fall was worse for midcap and smallcap stocks. The S&P BSE MidCap and SmallCap indices fell over 288 points (-2.1%) and 398 points (-3.2%) respectively on August 23 and closed at 13,202.08 points and 12,186.11 points as compared to 13,490.9 and 12,585.59 on August 16.

The difference between the day’s low and high for the Sensex on August 23 shows the level of chaos—700 points. The 30-stock index closed at 36,701.16 points—over 228 points (+0.63%) higher than August 22’s close of 36,472.93. But on August 22, the Sensex had fallen over 587 points (-1.59%) from August 21’s close of 37,060.37.

The upswing on August 23 was brought about by the news that finance minister Nirmala Sitharaman would address the media on slowdown concerns. “The statement of FM’s conference has changed the sentiment dramatically, and helped major indices close higher,” says Shrikant Chouhan, head of technical research at Mumbai-headquartered Kotak Securities.

According to Ajit Mishra, vice president, research, at Religare Broking, markets will react to the outcome of FM’s conference. “Needless to say, hopes are high so any disappointment could result in a sharp reaction on the downside,” says Mishra.

Mumbai-based Jimeet Modi, founder and CEO of SAMCO Securities, notes that market had given up hope that the government might come up with measures to prop up the economy. “Markets seem to be coming out of a fear spell which had gripped them since the beginning of August,” says Modi.

Some kind of respite was needed. Over these 23 days in August, foreign portfolio investors (FPIs) have sold equity worth ₹12,105.33 crore ($1.73 billion)—a few hundred crores lower than what was sold off in the whole of July (₹12,418.73 crore).

Corporate earnings of June quarter too had not given much to hope for. In an August 22 strategy note, Nomura analysts Saion Mukherjee and Neelotpal Sahu revised their Nifty 50 target for March 2020 from 12,900 to 11,880. The duo highlighted that Nifty companies reported an annual earnings growth of 1.4% in June 2019. But, upon excluding financial stocks, the annual change was a decline of 13.7%.

Typically, first quarter earnings account for 22-25% of full year earnings. This time, it is expected to be just 19% of FY20 estimates. “Hence, we do not rule out the possibility of further earnings cuts for FY20,” Mukherjee and Sahu noted. The duo highlighted that aggregate consensus earnings for Nifty were cut by 15% for FY20 and 6% for FY21 since the start of FY19. Consensus now projects earnings growth for Nifty at 14% and 19% for FY20 and FY21 respectively.

In her media address after market hours, Sitharaman announced a slew of measures to boost the economy. The most important one concerning the markets was the restoration of pre-budget position for FPIs as well as domestic investors. This means that the enhanced surcharge levied on long and short term capital gains arising from transfer of equity shares/units have been withdrawn.

The indices is most likely to see an upswing on Monday on the back of the measures announced on Friday. However, the fundamental challenges facing India Inc. will continue to keep investors on tenterhooks.

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