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Expect a deep COVID-19 scar on June quarter GDP prints; will it derail Nifty's rally?

While it is almost certain that the economy degrew in the June quarter, the question is to what extent? The government data on August 31 will lift the curtain from it.

August 28, 2020 / 01:53 PM IST

India’s April-June quarter GDP data, which will be released on August 31, is likely to show signs of deep stress and a broad-based decline, thanks to the unprecedented disruption caused by the COVID-19 pandemic.

The highest impact will be for segments like manufacturing, construction, hotels and transportation due to decade low productivity.

While it is almost certain that the economy degrew in the June quarter, the question is to what extent? The government data on August 31 will lift the curtain from it.

Economists at Barclays Research said India’s economy likely contracted by 25.5 percent year-on-year (YoY) in Q2 CY20, with growth in government consumption unable to cushion a near washout in almost all other

expenditure segments.


"We expect India’s Q2 CY20 (April-June) GDP data to confirm that COVID-19 containment measures have dealt an unprecedented blow to the economy, with almost all economic activity coming to a halt as the country went into a stringent lockdown in late March," Barclays said in a note.

"With the national lockdown measures being extended through all of April and May, and most states extending their own partial restrictions through all of June, the rural economy, government spending and essentials will likely be the only sectors mitigating some of the declines."

Madan Sabnavis, Chief Economist at CARE Ratings expects the GDP print to show degrowth of 20.2 percent. Except for government and Agri, all others may be negative, Sabnavis said.

What does it mean for the market?

Even though the market is not expecting any positive surprise from the GDP numbers, a better-than-expected GDP number will boost sentiment. Analysts believe more than the numbers, the market will focus on hints for the road ahead.

Ajit Mishra, VP Research at Religare Broking is of the view that the June quarter GDP may contract in the range of nearly 15-20 percent which is in-line with the market expectations.

Mishra believes that the GDP numbers will not significantly impact the market if it sees a contraction in the range of 15-20 percent as its largely discounted as market participants are aware that the economy and businesses were severely impacted due to lockdown.

However, a better-than-expected GDP number, which looks unlikely, could aid sentiment as it would indicate the possibility of a faster recovery, said Mishra.

Satish Kumar, Head of Equities, Equirus Securities is of the view that the market may not react to GDP numbers as it is mostly factored in.

"I don't expect any significant impact. If GDP print shows a fall of 30 percent or more, then we can expect some correction in the market," Kumar said.

Vinod Nair, Head of Research at Geojit Financial Services, also feels that the market may not react to GDP prints.

"It won’t be a jolt to the market. Historical low GDP data will not impact the sentiment of the market. Uncertainties from the COVID-19 effect were factored in the market during the tremendous fall of February and March. The scenario has improved after the intervention by policymakers in India and overseas. Now, the market is expecting quarter-on-quarter (QoQ) improvement in economic data starting from Q2 FY21 onwards," said Nair.

Jyoti Roy, DVP- Equity Strategist, Angel Broking underscored that the market participants expect India's Q1 FY21 GDP to contract by 15-25 percent, while rating agency ICRA sees a 25 percent YoY contraction and CARE ratings expects a 20 percent YoY contraction in GDP numbers. As long as the numbers remain in consensus estimates, the market will not react.

"As long as the GDP print is not too much away from consensus estimates, we do not expect markets will react too negatively to it. We believe that markets have already discounted the GDP numbers as the Q1 corporate results season is coming to an end," Roy said.

"However, if the GDP contraction is around 15-18 percent, as expected by few economists, or less than that, then markets will take it positively as it will support the fact that the slowdown was not as bad as initially expected," Roy added.

Roy pointed out that the high-frequency data points like PMI, auto sales, cement and steel production data numbers continue to point to economic recovery and markets will be keenly awaiting the PMI and auto sales numbers for August which will come out next week.

Is the worst over?

The government and RBI have been prompt to take measures to mitigate the impact of the pandemic on the economy by rolling out stimulus packages, reforms and rate cuts.

However, revival would take time as there is still high uncertainty regarding COVID cases.

Barclays pointed out that as the economy stirred back to life in May-June. Some indicators like power and fuel consumption and freight started to show slow and steady normalisation. However, growth is unlikely to return until Q4 CY20.

"For a large number of indicators that had been improving in May and June, activity levels have begun tracking sideways. This raises concern that the bounce in some activities could be relatively short-lived, and at risk of reversal," Barclays said.

Barclays expects Q3 GDP to contract by a sharp 8 percent. For the calendar year 2020, it expects the economy to shrink by 6.5 percent, despite a relatively robust agricultural production cycle and a solid rural recovery.

In financial year terms, Barclays' estimates now point to a 6 percent contraction in FY20-21.

Sabnavis of CARE Ratings expects GDP prints to remain negative in the next two quarters also, but the intensity will reduce.

"Just as we have seen IIP monthly numbers have been negative but improvements over the preceding month, so will it be in Q2. July and August too have been non-starters for several industries and will weight down heavily on GDP growth in Q2," Sabnavis said.

"As it looks unlikely that sectors like hospitality, transport, tourism, entertainment, will open up even in Q3, there will be several negative numbers across sectors up to December. Depending on how the to unlock process becomes credible, Q4 can see an anaemic positive growth rate," Sabnavis added.

Disclaimer: The views expressed by experts on are their own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Aug 28, 2020 01:53 pm
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