Financial Impact on the Indian market
Between 31 March 2020 and April 2020, the S&P BSE Sensex index fell by somewhere between 30% and 45%. While the stock market’s passive reaction to the destructive Covid-19 waves has been puzzling, the Indian government has encouraged state / local governments to adopt more localized and targeted containment measures to avoid too big an Financial impact.
The Nomura India Business Resumption Index (NIBRI) fell to 60 for the week ended May 23, 2020 down from 63 a week earlier. The index, which tracks high-frequency Financial indicators such as mobility, power demand and unemployment, is down to levels seen in June last year after a full recovery in February.
The Indian economy is unlikely to take a hit as bad as last year’s, especially as much of the country’s industrial activity has not shut down. In early April, when the surge in Covid cases was apparent, IMF had decided to revise India’s output growth forecast for next year upwards from 11.5% to 12.5%.
Financial impact Sector wise
The Indian economy exited its contractionary phase in the quarter ended December 2020, after two consecutive quarters of fall, according to the data released by the National Statistical Office (NSO). Its real gross domestic product (GDP) grew by a marginal 0.4 per cent, while real gross value added (GVA) reported one per cent expansion.
The agricultural sector, which remained unbattered by the Covid-19 induced lockdown, grew by 3.9 per cent in the December 2020 quarter. Utilities, which were quick to recover from the shock in the September quarter itself, reported a smart 7.3 per cent expansion in the December 2020 quarter. The manufacturing sector returned to growth, buoyed by release of pent-up demand and fresh festive spending. It clocked 1.7 per cent growth in GVA. The IIP data shows that this growth, however, was skewed in favor of infrastructural goods, electronic goods and home appliances. Labor intensive industries such as textile, leather, beverages, tobacco and paper were missing from the festive frenzy.
The mining sector continued to languish, but construction sprung a pleasant surprise. Construction recorded a 6.2 per cent growth in the December 2020 quarter, possibly driven by aggressive capital spending by the central government. This shows up in capital formation which grew by 2.6 per cent, after two quarters of fall.
The services sector continued its y-o-y contraction for the third consecutive quarter, albeit at a much slower rate of one per cent than the 21.4 per cent and 11.4 per cent contraction seen in the June 2020 quarter and the September 2020 quarter, respectively. The financial, professional services & real estate sector did well, growing by 6.6 per cent in the December 2020 quarter. The growth was driven by profits made by financial services companies. The trade, hotels, transport, storage & communications segment continued to contract (-7.7 per cent) and so did the public administration segment (-1.5 per cent).
On the demand side, the growth was driven by capital formation alone. Private final consumption expenditure did narrow its contraction to 2.4 per cent in the December 2020 quarter, but failed to return to growth. Consumption demand seems to have been driven by middle and higher-income groups, a majority of whom have not taken a hit on their incomes amid the pandemic. Final consumption expenditure by the government too declined by 1.1 per cent and so did imports and exports, which fell by 4.6 per cent each. Capital formation, the sole driver of growth from the demand side in the December 2020 quarter seems to have grown on increased capital outlay by the Centre. Central Government’s capital expenditure more-than-doubled compared to its level in the December 2019 quarter. Participation of private corporates seems to have been absent in capital formation recovery.
Covid has brought change in pattern of consumption of goods & services. Many goods which considered to be essentials in physical format e.g. printed books, appeals, Fuel etc. are being substituted by virtual services like eBooks, good internet connectivity, software, Apps etc. Infect the corporates who sensed this change early emerged as winners and the financial performance has seen positive upside.
COVID brought substantial amount of reduction especially on Administration & Selling and Distribution costs. Suddenly corporates are finding many recurring costs as redundant and have taken policy decisions for dispensing with the same. Hence although there were constraints on Top line, the bottom line remained unaffected relatively.
Financial impact Industry wise :
COVID-19 affected industries differently and in general the industry wise impact is as under:
- Minimal — consumer staples, technology and utilities;
- Moderate — financials, health care, industrials and real estate; and
- Significant — consumer discretionary, energy, retail and tourism and
