India economy- Limping back
Last updated: 06 Jul, 2020 | 06:08 pm
GST collections recover
- GST collections improved for the second straight month in May, from a record low of ₹32,294 crore seen in the month of Mar-20.
- The total collections stood at Rs 90,917 crore in May- about 85-90% of collections Pre-Covid.
Manufacturing activity stabilizing
- India's manufacturing sector recovered sharply towards stabilisation in June.
- The India Manufacturing PMI (Purchasing Managers’ Index) is an index comprising New orders, manufacturing output, employment, supply time and stock in manufacturing.
- This index is a widely regarded gauge on the manufacturing industry and business optimism. The June PMI improved to 47.2 from 30.8 in May.
- Although a PMI number below 50 indicates a contraction in business activity month over month, the number was well above market estimates and the sharpness in trend reversal is positive.
Core sector output decline slower than April
- The table below shows the contraction in output for eight core sectors — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity. This is a leading indicator of the monthly industrial performance.
- The eight-core industrial output contracted by 23.4% YoY in May 2020 slower than the decline in growth of 37% YoY seen in the previous month of April.
- The lockdown imposed in the wake of the pandemic has hit production activity across various industries. Steel Production (down 48.4%), Cement ( down 22.2%), Refinery Products (down 21.3%). Electricity production, which makes up nearly 20 per cent of the index, dropped 15.6 per cent in May, while coal production, which contributes around 10 per cent, dropped 14 per cent.
A full-blown recovery in Core Sector output seems to be at least a few months away, as demand remains subdued, and lockdowns continue in various parts of the country.
Auto Sales Data
Two-wheelers see massive recovery
- Two-wheeler sales have recorded a sharp recovery in the month of June. In fact, sales of Hero MotoCorp quadrupled month-on-month to 4,50,744 units in June. These sales are now at 90% of the pre-Covid levels for HeroMotocorp. Bajaj Auto reported a 120% MoM jump in sales for the month of June to 2,78,097 units.
- While a lot of this is attributed to latent demand in the system as a result of shut down, industry expects this trend to continue with the momentum of bookings being received.
- According to the company, the majority of the demand emanated from rural and semi-urban markets.
- On an average, retail sales have now reached about 80% of pre-Covid level in the two-wheeler industry.
Four-wheeler sales recover too, slower than 2 wheelers
- The recovery was much sharper in 2-wheelers than 4-wheelers. Dispatches of cars and SUVs to dealers more than doubled during June compared to May but are still less than half compared to their usual monthly level.
- Maruti Suzuki, India's largest carmaker, clocked wholesales (sales to dealers) of 51,274 units in June. While this was less than half compared to June of last year, it was more than three times compared to May. Maruti Suzuki holds about ~48% market share.
- Demand has recovered in Passenger Vehicles (~60% of pre-Covid) segment in June. Fear of public transport and pent-up demand aided sales growth for the month.
- The numbers indicate that the economy is limping back to normalcy, though a full-blown recovery seems to be at least a few quarters away.
- The initial signs of pick up as the economy started to reopen are positive. While companies are laden with debt and the financial sector will take a hit, there is still demand in the economy.
- However with the spread of COVID gaining pace across the country, further shut downs continues to be the biggest factor to impede recovery.
- Invest in equities in a staggered manner. Keep your SIP’s running. Stick to large caps and index stocks that are best suited to navigate the economic crisis
- Stick to AAA-rated low duration funds and bonds over high duration funds, and long-maturity bonds as yields will remain volatile in the near future but in the medium term (2-3 years) the rate cycle is expected to bottom out and move up
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