India economy update: Sep-2020

GST Collections nears pre-COVID levels

• Total Goods and Services Tax (GST) collections in September 2020 stood at ₹95,480 crore, approximately 10% higher from August 2020 and 4% than in the same month a year ago.
• September recorded the highest collections in this financial year and the numbers are in close proximity to pre-COVID levels, this points out that economic activity is picking up with the gradual easing of lockdown restrictions.

Manufacturing PMI at an 8 year high, services shrink least in last 7 months

• A PMI number below 50 indicates a contraction in business activity month over month, while a point above 50 indicates growth.
• “The IHS Markit India Manufacturing PMI surged to 56.8 in September 2020, beating consensus estimates of 52.8, it is the highest level achieved since January 2012.” The growth rate is the third-quickest in survey history. Output rose for the second straight month and with back-to-back rises in new orders.
• The IHS Markit India Services PMI increased to 49.8 in September 2020 beating market expectations of 44.7, it was at 41.8 in August 2020. This was the highest reading since February before the COVID led economic slump, however, it is still marginally below the neutral level of 50.

Encouraging Auto Sales Data

• Continuing the path of recovery from the zero sales in April, Indian two-wheeler manufacturers have now surpassed pre-COVID level sales in September. Three of the top six manufacturers, which control 96% of the domestic market, reported an increase in demand in Sep-20, buoyed by the resumption of economic activities.
• “Leading the path of rapid recovery, Hero MotoCorp sold more than 7 lakh units, its highest monthly sales in CY2020.”

• Passenger car sales have seen a rapid recovery in September-20, led by India’s largest car manufacturer Maruti Suzuki recording 30.80% on-year rise in total sales to 1.60 lakh vehicles. 
• Tata Motors and Hyundai have also shown robust growth in the month, aided by easing of lockdowns in various states.
• Demand from rural areas continues to remain strong. On the back of good monsoons, increased government support via crop prices and MNREGA funding. “Pent up demand, shift to personal mobility, inventory building for the festive season and several new car launches helped the carmakers to post robust YoY growth in Sep-20.”
• However, Commercial vehicles and three-wheelers remain the worst affected in this pandemic. Given the fact that consumers are unwilling to use public transportation to practise social distancing, this segment could remain under pressure in the near-medium term. While the sales have improved month-on-month, Sep-20 witnessed a single-digit decline as compared to the same period last year.

Downwards revisions of GDP growth forecasts

• The month of September saw numerous agencies revising India’s GDP forecasts downwards because of a host of factors like rising COVID cases, slower than expected economic recovery, fiscal concerns etc.
• S&P Global Ratings slashed India’s FY21 growth forecast to -9% from -5% estimated earlier whereas Moody’s revised downwards its forecast on India’s GDP growth for  FY21 to -11.5%, while Fitch estimated a fall of 10.5% and Goldman Sachs 14.8%.
• INDmoney Analysis
• While Apr-Jun GDP has seen a massive hit, economic data in the following months show green shoots of recovery
• Manufacturing PMI is at its highest level in 8 years, auto companies have reported robust numbers pointing towards stabilisation
• 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, the COVID spread across the country has not shown any sign of slowing down. Thus any further shutdowns and depressed consumer sentiment continue 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.