Monday, August 31, 2020

Top Markets Analyst Opinions and Views on Indian Economy Recovery

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Recovery in India’s GDP to be gradual, may call for further stimulus, say analysts

The sharp fall in the first quarter GDP is on expected lines given that around 70-80 per cent of the economy was on a standstill in the first two months of this quarter.

Synopsis

"The GDP contraction numbers are much worse than expected and clearly shows the economic recovery expectations are slower than believed."

By ETMarkets.com

Last Updated: Aug 31, 2020, 07:49 PM IST

Mumbai: Economists believe recovery in India’s economic growth will be slower than earlier expectations after the country’s GDP contracted by a higher-than-expected 23.9 per cent in the June quarter–the worst in more than 40 years.

Economists in a Reuters poll had predicted that gross domestic product in the world's fifth-largest economy will contract by 18.3 per cent in the June quarter, compared to 3.1 per cent growth in the previous quarter; the worst performance in at least eight years. Economists surveyed by Bloomberg had expected the data to show GDP decline by 19.2 per cent in the June quarter from a year ago.

Here is what the analysts and economists are saying:
Abhimanyu Soat, Head of Research, IIFL Securities
The GDP contraction numbers are much worse than expected and clearly shows the economic recovery expectations are slower than believed. However, the impact on markets may not be long term as this is a hindsight view. Further, fiscal and liquidity stimulus may be expected.

Rajani Sinha, Chief Economist & Head Research at Knight Frank India
The sharp fall in the first quarter GDP is on expected lines given that around 70-80 per cent of the economy was on a standstill in the first two months of this quarter.

With the economy unlocking in the last few months, most economic parameters have improved to 70-90 per cent level of the corresponding period of the previous year. However, a sustainable recovery would depend on the time taken to contain the spread of the virus. It is very important for consumer sentiments and consumer spending to improve for the economy to bounce back.

Suvodeep Rakshit, Vice President & Senior Economist at Kotak Institutional Equities
Real GDP growth at (-)23.9% in 1QFY21 was much lower than what markets were expecting. The print indicates that the trough in the economy was much lower than expected and the pickup will likely be more elongated.

The choice for the government will be on whether the consumption or the investment side needs to be pushed. Given the limited fiscal space and the need to stimulate more durable growth, the growth recovery will be gradual and is likely to continue into 1HFY22.

Arjun Yash Mahajan, Head – Institutional Business, Reliance Securities
The 1QFY21 GDP print is already priced in the markets. What needs to be looked at is the 2QFY21 GDP number. If that number is also on the negative side and on similar lines to 1QFY21 GDP print, then we may see a correction.

Joseph Thomas, Head of Research - Emkay Wealth Management
Whether it is private consumption or capital formation, the numbers are hugely negative and would require more action from the government; though the government’s fiscal position does not leave much room for further action. The core sector numbers, too, indicate nothing different regarding the state of the economy. A demand or consumption-led recovery is crucial for the economy and it may require measures by which the disposable income of people is enhanced.

Dinesh Pangtey, CEO, LIC Mutual Fund
With GDP numbers expected to remain weak in the second quarter, inflation is expected to decline and with an accommodative stance from the RBI, the bond yields are expected to remain soft in the immediate future.

Mohit Ralhan Managing Partner & CIO, TIW Private Equity
It is a forced contraction and not a structural one. We have witnessed record kharif sowing amidst a good monsoon and there will also be a pent-up demand on the consumption side. The GDP growth is very likely to bounce back with the opening up of the economy and gradual subsiding of the Covid pandemic.

Raghvendra Nath, MD, Ladderup Wealth Management
The contraction in the GDP is much higher than expectations. Unfortunately, India is still reeling under lockdowns by various states and the consumption trends continue to remain lower. While the second quarter number may be a little less negative than the first quarter, the slow growth trend is likely to continue.

Nish Bhatt, Founder & CEO, Millwood Kane International
The growth rate for April to June quarter was expected to be bad but it turned out worse; a degrowth by 23.9 per cent is worse than the most bearish estimate. Positive agricultural output is the only positive element in the GDP print

While the RBI has done its part to help boost consumption and economy, a further rate cut may help boost credit offtake. The government may still have some more fire-power with further stimulus measures for specific sectors. Good monsoon, high agri output will help with a pickup in rural consumption. Government spending, reforms, and more measures to boost consumption is required to bring back growth on track.

Anuj Puri, Chairman, ANAROCK Property Consultants
Though the contraction is deep, worse was expected. However, these readings must be viewed in the light of an unparalleled assault on the global economy, from which India is certainly not insulated, by a health disaster the likes of which the world hasn't seen since the Spanish Flu in 1919. The world bounced back then, and will this time, as well. Indian real estate will continue its gradual recovery as housing demand returns and cities get further out of lockdown mode.

Nikhil Gupta, Economist - Institutional Equities, Motilal Oswal Financial Services
Worse than the consensus of 18 per cent fall, real GDP decline is a shocker. Of course, it is not comparable to anything in history. Going forward, it appears that July was worse than June and the initial data for August is also not very encouraging. There would be another contraction in Q2FY21. However, what needs to be seen, and as we have always feared, is that the turnaround from late CY20 could be much slower than the general expectations.

Fear Psychosis on GDP Contraction

Q1 GDP shrinks | How long will the free fall last?

MoneyControl • Sep 01, 2020 08:30 AM IST

By Gaurav Choudhury

The economy’s revival will critically depend on people’s ability and confidence to spend, both of which are at awfully low levels currently

What happens when factories are abruptly shuttered down? What happens when the people stop eating out? What happens when road and infrastructure projects come to a crushing standstill? What happens when property construction sites are vacated for an uncertain period of time? What happens when shops shut abruptly for long periods? What happens when export orders hurriedly get cancelled or dry out?

The answer is a no-brainer: The economy will shrink. This postulate shows up perfectly in the national income data released on August 31.

Gross domestic product (GDP) — the total value of goods and services produced in the country — fell 23.9 percent in April-June 2020, the worst in India’s statistical history, a data set that was not entirely unexpected. The deliberation was only over the extent.

The extent is now clear, and official. From manufacturing to mining, from construction to real estate, from hospitality to trade, the lockdown has spared none.

The bigger question now is: How long will the impact last? Will it last for months or for years, if social distancing measures need to be kept in place for protracted periods?

Will the economy see multiple peaks and troughs in the number of cases and losses of output, spanning several years? By when will the economy return to its pre-outbreak levels?

A V-shaped recovery is the best-case scenario that everyone is hoping for. This happens when the economy rockets back as quickly as it had fallen, aided by a government stimulus that pushes up demand.

Income and output rises, demand grows and higher spending by households prompt companies to add capacity lines and hire more. Not many economists, though, are predicting a V-shaped rebound this time around, given COVID-19’s pervasive spread and the lockdowns’ biting impact on the broader economy.

An L-shaped slide, sometimes described as the ‘hockey stick’ slump, appears more likely, although policymakers would desperately want to avoid such a state, which comes about when the growth nosedives and stays down for a long, long time.

India has never recorded a drop in real GDP growth since 1979. There have been four ‘negative growth’ periods in India since Independence: late 1950s, 1965 (-2.6 percent), 1972 (-0.5 percent) and 1979 (-5.23 percent). COVID-19 could well push India into full-blown recession for the first time in 40 years into an L-shaped scenario.

One of the surest ways to revive the Indian economy, or any economy for that matter, is make people spend more. Unlike China, the edifice of India’s growth has been the vast consuming households.

While the middle class spending is widely evident through visible items such as cars and consumer durables, it is the not-so-well-heeled that actually keeps India’s consumption cycle thriving.

An economy-wide squeeze have made those at the lowest income scale, such as migrant daily wagers and street vendors, most vulnerable. These are the class of people that need immediate hand-holding.

The collapsing purchasing power of this class has shown up in GDP numbers. Private final consumption expenditure (PFCE) — the best available proxy to measure household spending in India — has fallen 26.7 percent during April-June 2020 (at constant prices), compared to the same period last year, buttressing the importance of greater everyday spending to engineer a quicker rebound in the broader economy.

Of India’s workforce, 90 percent is in the informal sector, millions of whom have migrated from their villages in search of a better living. In terms of sheer numbers, these inter-state migrants make up for a colossal magnitude, underlining their importance in India’s economic structure.

The Indian Railways ferried an estimated 9 million migrant labourers through its special services — Shramik Special trains — from various cities to their respective states during the lockdown.

The migrant worker population has spawned a domestic remittances market, estimated to exceed Rs 1.5 lakh-crore annually. Effectively, this implies that migrants working in urban areas are sending money back to their families in villages worth nearly two-and-half-times last year’s annual MGNREGA budget.

These money transfers, from migrant labourers to villages, serve 10 percent of households in rural India, and finance over 30 percent of household consumption in remittance-receiving households, buttressing the importance of urban growth for rural families.

Therefore, an out-of-work migrant worker not just brings down their own income, but also, at a macro level, worsens prospects of in the rural economy, as it brings down their ability to send money home.

The scenario is clear: The economy’s revival will critically depend on people’s ability and confidence to spend, both of which are at awfully low levels currently.

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As India’s GDP contracts sharply in Q1,

As India’s GDP contracts sharply in Q1, other indicators show more pain ahead

2 min read . 07:25 PM ISTAparna Iyer, Mobis Philipose

Most indicators have shown that the initial improvement in June has tapered off in July
Many businesses are now indicating pent-up demand slowly fizzling out, so it remains to be seen how data for the coming months turns out

India’s economy contracted by a massive 23.9% in the June quarter, a nasty number largely expected by the market. But more than the headline print, what worried the markets were the gaps behind the calculation of it. Indeed, the Central Statistical Organisation (CSO) faced a big challenge in collating the data for gross domestic product (GDP) as the lockdown for the first two months of the quarter made it impossible to do so.

“…the usual data sources were substituted by alternatives like GST, interactions with professional bodies etc. and which were clearly limited," said the release. In this backdrop, economists have made their own proprietary indices, which may be more reliable at gauging the economic impact of the pandemic.

One of the most popular indicator ever since the pandemic hit has been the Google Mobility index that measures visits to different locations such as retail shops, workplaces, parks and transport hubs.

Abheek Barua, chief economist at HDFC Bank said that these indicators serve as a good gauge of what to expect in the months ahead. “We and others too have taken the mobility index in our own indices of economic activity. These capture the improvement or lack of it in different segments fairly accurately," he said.

Most indicators have shown that the initial improvement in June has tapered off in July. In short, the economic recovery is fragile. Electricity use and fuel consumption showed how recovery in industrial output could be long drawn. One of the unlikely indicators that could give recovery cues is the wholesale price index (WPI) inflation. In an interview with a television channel, Reserve Bank of India Governor Shaktikanta Das said that the central bank looks at multiple indicators one of them being WPI inflation. The recent prints of the headline number has shown that producers are far from getting back their pricing power. This indicates that demand is yet to revive.

Besides, the gross GST revenue collected in July was Rs87,422 crore, 14% lower from year ago. Another widely followed indicator of business activity is the trend in e-way bill generation, which also shows the pace of recovery seen in June and July hasn’t sustained in the latest data. E-Way bill generation for April, May, June and July hovered at 16%, 46%, 79% and 88% levels, respectively of pre-covid levels, but came back to 80%, the latest data for mid-August showed, according to data collated by ICICI Direct.

“The recovery remains uneven with a faster rise in supply versus demand, rural consumption versus urban and industrial sector versus services," Nomura’s economists said in a note on 25 August.

23 March LOW @7251 to @11800

Negative News from @7512 to @11800......but still MArkeT of the World are going Up.........

Negative GDP growth...... Contraction in Economy

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USA China Trade War.......

USA Presidential election......

Printing of MONEY......

Lower Interest Rates World wide........

FED Lower Interest Rates

What the Fed's shift toward lower rates means for borrowers, savers, markets and the economy

PAUL DAVIDSON | USA TODAY

Fed: Rates to stay low even if inflation rises

Show Caption

The Federal Reserve took a historic step Thursday by approving a new policy that aims to spur higher inflation and more aggressively push down unemployment, a strategy that will likely keep interest rates at rock bottom for years.

Traditionally, the Fed has taken a balanced approach, lowering interest rates to spur more borrowing and economic activity to create lots of jobs, and increasing rates when the economy ran so hot that it raised the prospect of excessive inflation.

Now, the Fed is effectively saying it will err on the side of more job creation and not worry as much about spikes in inflation. Instead of always aiming for 2% annual price increases, the central bank will target inflation that averages 2% over time. So, if price increases undershoot the Fed’s goal, as they have for most of the past decade, the Fed will let inflation run “moderately above 2% for some time,” as Fed Chair Jerome Powell put it.

USA TODAY economics reporter Paul Davidson breaks down the Fed’s landmark shift:

Why is the Fed taking this new approach?

Inflation has languished below the Fed’s 2% target even as unemployment reached a 50-year low of 3.5% last February. Normally, record low unemployment should spark higher inflation as businesses bid up wages to attract a smaller pool of workers, forcing firms to raise prices to maintain profits. After the COVID-19 pandemic triggered the nation’s steepest-ever recession this year, inflation has fallen even further while unemployment has shot up to 10.2%.

Although the Fed typically has tried to stave off surges in inflation, which burdens Americans with higher costs, Fed officials have become more worried about persistently low inflation. Meager inflation can lead to falling prices, or deflation, that prompts consumers to put off purchases as well as skimpy wage increases that especially hurt low- and middle-class Americans. Scant inflation also causes the Fed to keep interest rates historically low, giving it less room to cut rates in a downturn.

Federal Reserve building

GETTY

As a result, the Fed has little to lose right now by keeping its key rate near zero, which theoretically should help create more jobs, push down unemployment and allow inflation to heat up.

Fed makes historic change: Fed announces landmark policy shift to spur inflation, job growth, keeping rates low longer

Wasn’t the Fed already planning to keep rates near zero?

Yes, but the new policy likely ensures that rates will stay at that level even if the economy reaches full employment and inflation edges above the Fed’s 2% goal in a few years. In the past, the Fed probably would have raised rates in that scenario.

Who will benefit from the low rates?

Consumers and businesses already have gained from low rates that hold down borrowing costs for home and auto purchases, student loans, credit cards and factory construction, among other things. The new policy will mean Americans can enjoy very low borrowing costs for even longer, even after the economy recovers.

Job seekers will also be among the winners as low rates spark more economic activity and hiring.

What about the stock market?

Low-interest rates already have led investors to move money from low-yielding bonds to stocks, helping lift the Standard & Poor’s 500 index to new records despite an economy that’s still trying to dig out of a brutal recession. The Fed’s vow to keep rates near zero longer has amplified that effect, says Chris Zaccarelli, chief investment officer of Independent Advisor Alliance.

Positive news on a COVID-19 vaccine or the economic recovery will further juice the market, Zaccarelli says. But with low rates now even more entrenched, negative news may hurt the market but probably won’t cause stocks to tank, he says.

“The Fed has put a floor under the market no matter what,” he says.

He adds, “Is there a risk the Fed is going to create a (market) bubble” that ultimately pops?

“Yes.”

How quickly will economy bounce back?: 'What am I going to do at 55?': More temporary layoffs could become permanent during COVID-19 recession

Who's going to be hurt by the Fed’s new strategy?

Savers, especially seniors, stand to lose. After keeping its key rate near zero for years after the Great Recession of 2007-09, the Fed gradually raised it the past few years, boosting bank savings rates, especially for seniors with fixed incomes and fewer stock holdings. But as the pandemic virtually shut down the U.S. economy, the Fed abruptly slashed rates back near zero in March, again pushing down savings returns. Money market rates are averaging well under 1%.

Will Fed’s attempt to stoke inflation work?

That’s not clear. Rates already have been historically low but inflation has been held back by long-term forces, such as discounted online shopping and a more globally-connected economy. Throw in slower economic growth as a result of an aging population and sluggish productivity gains. Keeping rates lower longer won’t necessarily lead to more borrowing and economic activity.

“There is no guarantee that this will deliver the hoped-for inflation overshoot,” says Michael Feroli, chief U.S. economist at J.P. Morgan. “There’s only so much (the Fed) can do.”