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Impact of Stimulus Package announcements on Stock Market

Created on 16 May 2020

Wraps up in 2 Min

Read by 3k people

Updated on 31 Aug 2022

Stock Market seems unimpressed with the stimulus package announcements. And, Sectorial Talks on IT industry.
When you expect too much from someone, but the other person delivers nothing close to it, that hurts! It makes you feel low in life and you start ignoring that person who once used to be special. In this case, either the person just couldn’t comprehend your expectations or they didn’t have the resources to fulfill it. The stock market lows post announcement of the stimulus package is hinting at such a situation.

However, the stock market indexes recorded a rise day before yesterday (the day after PM Modi announced the package without giving the details) as the investors were hopeful of a ubiquitous stimulus package for the economic revival. But, as the first tranche was announced (post market closure on the same day), the market did not conceive it well. And, as a result the market plunged more than 800 points yesterday! And, it’s still dipping.

Why Did This Happen?

There is just one way with which the market expresses its discontentment and that is by getting low. Probably there wasn’t anything much wrong with the announcements but just that they weren’t in line with the expectations of the market. Of course they

missed short term revival expectations and since equity investors don’t prefer waiting much, the market went low. Also, when someone is hungry and expecting food, they won’t be satisfied with the best beverage in the world. They expected a comprehensive, inclusive and effective stimulus package but got tranches in return. 

Besides that, Direct Benefit Transfers (monetary) weren’t given the amount of weightage (compared to Fiscal benefits) as was expected by the market. And finally, the major reason is that the market doesn’t rely on emotions. Investors talk only business and nothing else. So, becoming self-dependent is an attractive goal to keep but, unless its results are visible in the businesses, market may just keep responding this way.

Sectorial Talks - IT Industry

Information Technology industry is mainly driven by innovation and adoption of new technologies which can be cost intensive at times to maintain their ability to get business from both new and existing clients. The key factors affecting the growth and profitability are a company’s ability to grow inorganically, control employee costs & other expenses and ability to manage capital generating enough cash flows. It is expected to grow at 7.7% in fiscal 2020 and when the world economy is growing at 3% then an industry with such growth rate can be treated as strong industry to invest in.

So, to invest in an Information technology stock, do check the Cash and P/E or PEG ratio. The better the stock fits into this criterion, the better option it would be for investment. It’s quite simple, first the criterion needs to be right in order to select the right stock. The data regarding the company’s revenue and expenses is available on ticker.finology.in

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