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FM’s stimulus too little, too late; devalue rupee to 80: Shankar Sharma

Sharma said a devalued currency would bring back pricing power and support earnings recovery.

ETMarkets.com|
Aug 26, 2019, 01.40 PM IST
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Sharma said the measures announced by the Finance Minister will not aid economic recovery in the long haul.
Market veteran Shankar Sharma believes there is a need to devalue the rupee sharply to the 80 level to the dollar to bring back inflation into the system. In an interaction with ETNOW, he said a devalued currency would bring back pricing power and support earnings recovery.

The rupee on Monday slipped as much as 58 paise to 72.25 against the US dollar and hit its lowest level in 2019 so far.

Reacting to the economic booster package unveiled by Finance Minister Nirmala Sitharaman on Friday, which included rollback of enhanced super-rich tax on foreign and domestic equity investors, exemption of startups from ‘angel tax’, a package to address distress in the auto sector and upfront infusion of Rs 70,000 crore to public sector banks, the benchmark Sensex traded over 500 points higher at 37,217 in afternoon trade, while Nifty gained 130 points at 10,959.

Sharma said that stock market's recovery in response to the FM’s measures would be short-lived. "The market forced the government to deal with the slowdown. India has performed in a very disturbing fashion this time around,” he said.

He said the measures announced by the Finance Minister will not aid economic recovery in the long haul.

Sharma said largecap IT firms and insurance companies look like safe pockets. Elsewhere, he is finding it difficult to find value in the battered midcaps and smallcaps. He said he would buy only if a bounce sustains at least 2-3 months. “Market fundamentals do not suggest FII flows will return soon. Corporate India is reluctant to borrow and I do think lending will come back into the system quickly,” he said.

Commenting on outflows of foreign portfolio investment, Sharma said overseas investors pulled out money due to economic distress, not because of the surcharge, which government had announced in the Union Budget 2019 on July 5. The FM rolled back the same on Friday.

FPIs have pulled out a net amount of over Rs 24,000 from domestic equities during July and August till date. The market maven said the government should have announced the rollback immediately after the Budget.

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