Is India’s economy on the road to recovery?

Last updated: 24 Jul, 2020 | 03:58 pm

Is India’s economy on the road to recovery?


Auto Sector: Two-wheelers outshine, Car sales down

  • Demand for motorcycles has recovered faster, especially in rural and semi-urban India, following a normal monsoon, good summer crop, and a shift towards personal mobility over public transport to better practice social distancing. 
  • As can be seen from the table, 2-wheeler sales have reached near to the pre-COVID levels in June, with a  spike in the month of May, whereas car sales have remained muted.

Credit card outstanding continues to fall

  • The total amount outstanding for households in credit cards continued to fall, for the month of May it fell by 4%. From January it has seen a fall of 16% indicating an increasing aversion to debt by affluent India. 
  • Credit card transactions have also seen a sharp dip with a minor bounce back in the month of May, overall transactions are down by a massive 51% from January 2020.


Personal loans outstanding

  • Overall (which include Education, Housing, Vehicles, Consumer Durables, and Credit Card) has fallen sharply since March highs driven by tight availability of credit and an aversion to spending and borrowing.
  • Bank credit continues to be tight with non food credit growth continuing to decline as banks get more tight fisted with lending preferring to park money in Government securities instead


  • While exports continued to rebound for a second straight month after April, imports declined to $21.91 bn. in the month of June. This is not a good sign for a country like India as it displays the weakening domestic demand. 
  • This trade surplus, India’s first surplus in 18 years did not arise because exports were soaring, it was due to a sudden fall in imports owing to weak domestic demand.
  • In fact, exports have been down for the fourth consecutive quarter on a YOY basis, exports for June 2019 were $26 bn vs $21.91 bn in June 2020.

IND Analysis

  • While stock markets may have staged a spectacular comeback, the economy does not seem to share the same levels of euphoria. 
  • Excess liquidity is driving the markets from unfettered FII inflows in the last couple of months as cheap money is flowing into assets across the world. US markets are at all time highs!
  • Domestic consumption, which forms around 57% of our GDP has not picked up sufficiently and another phase of lockdown in several states has caused supply chain disruptions to the businesses
  • Spending patterns seem to suggest a recession mentality across consumers, a dangerous precedent for an already stuttering economy hoping for a bounceback
  • The wave of pain in the financial sector is yet to fully hit the economy, currently suppressed by the moratorium. 
  • Both equity and debt markets are expected to remain volatile in the medium term
  • 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 high quality AAA-rated low duration funds and bonds. Prefer safety over high yields in this volatile market.

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