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Rs 1.7 lakh crore stimulus fails to cheer mutual fund industry

Many mutual fund players are still waiting for details on how the central government plan to soften the blow of the nationwide blockage following the Covid-19 pandemic.

, ET Online|
Last Updated: Mar 26, 2020, 05.09 PM IST
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Nirmala Sitharaman
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The financial stimulus plan announced by the finance minister earlier in the afternoon brought little cheer to the mutual fund industry. Many mutual fund players are still waiting for details on how the central government plan to soften the blow of the nationwide blockage following the Covid-19 pandemic, while others are keenly watching how the government is going to finance the massive relief plans.

"The market might want the govt to bail out some sectors or take care of the entire index. Sadly, that's not possible. I think today's stimulus was necessary and it couldn't have waited," says Rajeev Thakkar, CIO, PPFAS Mutual Fund. However, he believes the relief package is not going to solve the market's problems. "Until there is a clear direction on how we will tackle the virus or an end to it, the uncertainty will remain," he added.

Nirmala Sitharaman, finance Minister, on Thursday announced a relief package of Rs 1.7 lakh crore for the poor, urban and rural workers, hit by the COVID-19 pandemic. The stock market was expecting an economic booster in today's press conference, and it ended 1400 points up from its previous close.

Most fund managers believe that both the equity and debt markets are facing a lot of uncertainties and the package announced today does not mitigate them.

Thakkar said that this package is not the saviour of the stock market, but it is a positive since the governments are taking control of the situation, bit by bit. "These packages will definitely lead to fiscal slippage but that will happen around the globe. The government has to take that chance and the market knows that. The intraday movement of the market cannot be predicted at the moment," says Thakkar.

Fiscal maths is something the money market participants are keenly watching. The 10-year bond yield slipped -1.16% to 6.23%. Debt market participants continue to wait for the details about the source of the funding that the government need to tackle the economic setback arising out the pandemic.

"Even though it was an important package for the poor, the market is still waiting for clarity about the pressure on borrowings. If RBI is going to step in or not is still to be seen. I guess that's what is holding the bond yields where they are. Otherwise if the entire pressure is put on the bond market, we might see a selloff," says Lakshmi Iyer, CIO-debt & co-head - product, Kotak Mutual Fund.

Iyer believes that a fiscal slippage is bound to happen, and inflation might also go up. "The RBI is doing open market operations to infuse liquidity and if they monetise the packages also, I think the fiscal slippage won't be much. We will have to wait and watch at the moment," she says.

Rajeev Thakkar believes that if an investor has long-term money and the risk appetite, she can invest right now. "Be careful of your risk-taking ability. Keep cash for emergencies and if you have long-term surplus, invest in a staggered manner. The valuations are good at the moment," says Thakkar.

Lakshmi Iyer also believes that debt investors should not be extra adventurous and stick to safe schemes like liquid, corporate bonds and ultra-short duration funds.

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