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Topic : Personal Finance
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Is the present market condition, a correct time to withdraw stimulus?

Created by : Archana Singh, Relationship Executive, ICICI Bank  | 02 09 2010 07:58:56 +0000
Industry : Equity Research/AnalyticsFunctional Area : Equities(Markets)
Keywords : market stimulus withdraw correct time
Activity:  129 views;  last activity : 07 06 2010 20:18:09 +0000

Global slowdown and deficient monsoons not withstanding, the Indian economy is likely to show 7% growth level this year. The Central Statistics Organization's (CSO) full year GDP advance estimates pegs FY10 growth at 7.2% against 6.7% last fiscal.

The three main growth engines are manufacturing, mining and industry – with all three sectors expected to clock 8% plus growth. However, the government expects a decline in growth for the services and financial sectors. The real laggard this year will be the farm sector. Agricultural output is likely to decline 0.2% in 2009-10 compared with a growth of 1.6% last year, mainly on account of the poor monsoon rains.

So friends, do you think the present market condition is a correct time to withdraw stimulus?

  
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I agree with Esha. We shall wait for a while.
By R.K.MALHOTRA , Investment Advisor, WORKING FREELANCE  02 09 2010 13:07:14 +0000
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The stimulus has succeeded and we should begin to phase it down. Fiscal deficit next year can be lower than that of this year. There is now a stronger case for both the Centre and the RBI to begin withdrawing the stimulus measures. There is also a case to review the sops given to exporters. The government must rein in the fiscal deficit, as large borrowings could cause interest rates to harden. The government borrowing is pegged at Rs 4-lakh crore in the current fiscal. With private demand expected to pick up, there is concern that that large government borrowing could cause rates to harden and crowd out private borrowing. Manufacturers should withdraw stimulus rather than investing as it is unsure whether the demand would stay up if the stimulus is withdrawn.
By Archana Singh, Relationship Executive, ICICI Bank  | 02 09 2010 07:58:56 +0000
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Yes, even i would say there is some more time required for withdrawing the stimulus package. This is with respect to growth concern of few sectors which still require this stimulus package to continue for their growing concern ahead. There are few more sectors which still haven't overcome the 2008-09 downfall and are still dependent on that help provided by the government. Therefore, there would be a negative impact with respect to those sectors if the same is removed immediately. Hence, there should be a concern towards such sectors which can be impacted badly due to removal of stimulus package. ... Thank you, Manish N

Cheers!!
By Manish N Chugh, Officer Trainee, Stock Holding Corporation of India ltd.,  | 02 09 2010 14:54:45 +0000
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Even though most of the financial pundits are gung-ho about the GDP numbers this fiscal, but the industry is still skeptical about the future. This is aptly proved by the poor off-take of Bank Credit. The prices of crude is also not encouraging enough to indicate that the economy is back on track.

India has been fortunate enough to bounce back quickly because of our Banking System. It would be better for the government to carry on with the stimulus package for at least 1st half of FY'11 and start reviewing the same after that.

A withdrawal of stimulus at this juncture will put a heavy strain on the sentiments of the capital market, which will not do any good.

Rather the government should start squeezing the excess liquidity (CRR Hike ), plug the leaks in the PDS system, and revamp the NREGS scheme, so that inflation in food prices can be taken care of.
By Ranjeet Rony Sanyal, Marketing Manager, Group Product Manager  | 02 09 2010 12:33:44 +0000
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GDP growth in 2010-11 will largely depend on the rains. If we have a normal monsoon, the farm sector would grow at about 3.5% and overall economic growth would be about 8%. In that case, gross fixed capital formation is expected to grow by just 8.4% this fiscal compared to 12.7% a year ago. So I believe we should wait a few more month before making a decision of withdrawing stimulus from the market.
By Esha Johar, Risk Analyst, Irevna  | 02 09 2010 08:01:59 +0000
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