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Please refer to important disclosures at the end of this report
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Update on Government stimulus – Part I
Focus on agriculture and MSME sector along expected lines
The Finance minister has announced the first two tranches of the second part of
the ` 20 lakh cr. economic package. The focus of the economic package so far
has been on ensuring credit flow to essential sectors like agriculture, MSME and
Power in order to ensure that the economy doesn’t come to a standstill. Markets
however have been disappointed by the package so far given the lack of actual
cash spending by the Government which was the need of the hour.
The RBI and the Government have already announced fiscal and monetary
package of ` 6.9 lakh cr. earlier. The measures announced by the FM over the
past two days amounts to ` 9.1 lakh cr. thus taking the size of the total package to
` 16.0 lakh cr. With more announcements expected to follow over the next few
days there is scope of additional stimulus of ` 4 lakh cr which does not leave too
much ammunition for the Government.
Stimulus package focuses more on credit than actual spending
The stimulus package announced so far relies more on providing credit to the
economy and little in the way of cash spending by the Government. Effectiveness
of the measures announced so far will depend on the actual flow of credit to the
economy given that banks have been so far risk averse in lending and have been
on an average parking about ` 8 lakh cr. with the RBI daily.
We believe that the agriculture sector is the biggest beneficiary of the package
announced so far as the Government would try and ensure adequate credit flow to
the rural economy given its importance. Change in definition of MSME would
make more companies eligible for taking loans which along with credit guarantees
provided by the Government may spur lending to some extent. The Government'
has also tried to provide some relief to the real estate sector by extending the credit
linked subsidy scheme for middle income families for one year though it is unlikely
to have any positive impact in the short term.
Exhibit 1: Measures announced on 13
th
& 14
th
of May (` cr.)
Collateral free Govt guaranteed loan for MSME
300,000
Subordinate debt for stressed MSME
20,000
equity infusion for MSME through FoF
50,000
EPF support for workers & reduced contribution for business
9,300
partial credit guarantee scheme for NBFCs
45,000
Standing liquidity facility for NBFCs/HFCs/MFIs
30,000
Liquidty support for DISCOM
90,000
TDS/TCS reduction
50,000
Concessional credit to farmers through PM KISAN card
200,000
Additional Funding for farmers through NABARD
30,000
Credit linked subsidy scheme for real estate
70,000
Others measure (CAMPA, Street vendors etc.)
16,000
Total
910,300
Source: Company, Angel Research
Exhibit 2: Measures announced by Govt & RBI (` cr.)
Fiscal Measures announced by RBI so far
CRR cut (27th Mar'20)
137,000
MSF increase (27th Mar'20)
137,000
TLTRO (27th Mar'20)
100,050
TLTRO - small NBFC (17th Apr'20)
50,000
Refinance facilities to NABARD SIDBI NHB (17
th
Apr’20)
50,000
Standing liquidity facility - MF (26
th
Apr’20)
50,000
Total RBI measures so far
524,050
Fiscal package announced by the Government
Fiscal package by the Government (27
th
Mar’20)
170,000
Total package announced on 13
th
May’20
594,300
Total package announced on 14
th
May’20
316,000
Total
1,604,350
Source: Company, Angel Research
Focus of package has been on the
agriculture and MSME sector.
Additional stimulus of ` 4 lakh cr. to
be further announced by
Government
Effectiveness of package will depend
upon actual credit flow to the
economy
Improved credit flow to agriculture
bodes well for the rural economy
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Update on Government stimulus – Part I
May 15, 2020
2
Government unlikely to step up spending which is need of the hour
While the stimulus of ` 20 lakh cr. by the Government may address some of the
issues faced by MSMEs, NBFCs and the power sector we believe that the need of
the hour was for the Government to increase its spending significantly and put
money into the hands of the consumers which would then have been spent and
helped kick start the economy. However given fiscal constraints the Government is
not in a position to do significantly large cash spending.
Given that the Government lacks fiscal space to provide direct stimulus to the
economy in the form of cash spending we believe that trying to extend credit to the
agriculture, MSME and power sector is the next best thing that could be done by
the Government as it would ensure that the credit is available to the critical part of
the economy.
While the ` 20 lakh cr. stimulus package may seem large at ~10% of GDP, it is
still smaller in size as compared to the stimulus packages announced by other
countries like the US. The US Government has so far announced fiscal package of
~USD 2.7 trillion (13% of GDP) which includes cash transfers while the US Fed has
provided monetary stimulus of ~USD 2.5tn (11.5% of GDP) so far. Both the US
Government and the Fed have indicated that they are going to do more.
The Government has also highlighted that it would focus on land and labor and
there are expectations that there could be some announcement by the Government
on land and labor reforms in the next tranche. While such structural changes will
be positive for the economy in the longer run it would still not address the near
term issue of supporting demand which has collapsed as the economy has virtually
come to a standstill due to the lockdown.
View and outlook
The package announced by the Government may not be able to stimulate the
economy to the extent required and hence the markets disappointment by the
measures announced so far. While proactive measures by the Indian Government
to shut the economy early has so far prevented a widespread Covid - 19 epidemic
there has been a recent acceleration in new cases which is coinciding with gradual
relaxation to the lockdown. Therefore there is a risk that there could be an
outbreak in the future which is a cause for worry.
Therefore post the announcements so far we do not see any material change to
our investment strategy and continue to prefer businesses which are either
engaged in essential activities or could benefit from increased digitization. We
maintain our preference for sectors like agrochemicals, chemicals, FMCG,
pharma, telecom and IT which have better revenue visibility. We also maintain our
strategy of avoiding sectors which are vulnerable to the slowdown like aviation,
automobiles, hospitality, banks & NBFCs.
Government may not be able to step
up spending due to fiscal constraints
India’s Package at 10% of GDP is
inadequate and lacks cash spending
We continue with our strategy of
focusing business with better revenue
visibility
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Update on Government stimulus – Part I
May 15, 2020
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Exhibit 3: List of stock recommendations
CMP (`)
TP (`)
Sales (`)
OPM (%)
PAT (`)
ROE (%)
PE (x)
EV/Sales(x)
FY21
FY22
FY21 FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FMCG
Britannia Ind.
3,118
3,550
13,255
14,863
16.3
16.7
1,622
1,901
30.2
29.6
45.9
39.1
5.6
5.0
Colgate-Palmolive
1,350
1,522
4,827
5,213
27.4
27.9
855
938
40.4
37.7
43.7
39.9
7.7
7.2
Hindustan Unilever
2,006
2,294
40,778
44,855
24.6
24.8
7,024
7,809
64.3
61.7
63
56.7
11.7
10.7
Nestle India
16,248
19,100
13,235
14,558
22.7
23.3
2,091
2,333
34.9
31.3
74.9
67.1
11.4
10.2
P& G Hygiene
10,124
11,782
3,365
3,802
22.2
22.6
549
637
29.0
24.6
59.9
50.9
9.9
8.8
Other Consumer Goods
Avenue Supermarts
2,323
2,705
27,208
33,238
9.0
9.0
1,470
1,800
17.5
17.7
87.7
71.6
5.6
4.6
Bata India
1,364
1,592
3,359
3,762
27.7
27.7
434
518
17.9
18.1
39.9
33.5
4.7
4.0
Hawkins Cookers
4,347
5,117
768
876
15.1
15.1
82
94
45.0
42.2
28.9
25.1
3.0
2.7
Chemicals/Agro Chemicals
Aarti Industries
1,022
1,284
4,822
5,886
21.7
22.2
538
711
16.8
19.6
33.8
25.5
3.7
3.0
Dhanuka Agritech
461
520
1,217
1,304
16.0
16.4
150
165
22.6
22.8
14.7
13.3
1.8
1.7
Galaxy Surfacants
1,308
1,610
2,672
2,886
14.0
14.3
221
223
18.3
17.8
20.8
18.7
1.8
1.6
PI Industries
1,532
1,784
3,877
4,992
21.5
22.5
555
770
17.4
20.0
38.1
27.5
5.3
4.1
IT
Infosys
658
841
90,650
102,857
21.3
20.5
16,200
17,870
28.1
30.5
17.2
15.6
2.8
2.5
L&T Infotech
1,647
1,803
11,352
12,828
18.1
19.0
1,486
1,771
21.6
21.9
19.3
16.2
2.2
1.9
Pharma & Healthcare
Alkem
2,527
3,300
9,860
11,309
17.5
18.0
1,279
1,419
18.3
17.8
23.8
21.4
2.6
2.3
IPCA Labs.
1,594
1,900
5,360
6,111
22.5
23.0
821
976
18.8
18.6
24.3
20.4
3.9
3.4
Telecom/ Others
Bharti Airtel
540
629
99,530
111,755
44.4
45.6
4,405
8,171
3.7
7.1
87.8
42.5
3.6
3.0
Reliance Industries
1,435
1,758
373,215
457,539
13.8
13.3
30,272
37,510
6.4
7.8
30
24.3
4.9
4.0
Source: Company, Angel Research
Note: CMP is Closing price as of 14
th
May, 2020
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Update on Government stimulus – Part I
May 15, 2020
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