Last Updated : May 31, 2020 08:58 AM IST | Source: Moneycontrol.com

Q4 GDP numbers reveal poor health of domestic economy; will it weigh on market's mood on Monday?

GDP numbers may touch unprecedented lows during the April-June quarter as restrictions and lockdowns continue to constrain people's movement, severely hurting economic activity.

As broadly expected, India's Gross Domestic Product (GDP) numbers came weak on May 29. But, it is unlikely to have a significant impact on the mood of the market, which will focus more on the reopening of the economy.

The market was expecting a weak set of growth data for the March quarter and it may even have factored in a further plunge in Q1FY21 data.

"Other than the short-term volatility, the market may not be impacted much by Q4FY20 GDP data and look for the possibility of re-opening the economy. The importance of data has diminished since it is being factored that the next quarter's GDP data will be very weak," said Vinod Nair, Head of Research at Geojit Financial Services.

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"Q4 data had a partial impact of March last week lockdown and mostly from the slowdown of global growth due to disruption of the supply chain. This is also being factored in the ongoing corporate results and RBI meeting, providing a very week outlook," he said.

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India's GDP grew 3.1 percent during January-March this year, since the disruptions caused by the novel coronavirus pandemic punctured economy.

The GDP growth for FY20 came in at 4.2 percent, against 6.1 percent in FY 2018-19.

The GDP numbers may touch unprecedented lows during the April-June quarter as restrictions and lockdowns continue to constrain people's movement, severely hurting economic activity.

The nationwide lockdown kicked in on March 25, and its actual impact on the economy will show up in the subsequent months when businesses screeched to a standstill.

The Centre, on May 30 extended the coronavirus-triggered lockdown until June 30 in containment or high-risk zones. However, there were significant easing of restrictions in other parts, as restaurants, malls and religious institutions were permitted to reopen from June 8.

Also read | Unlock 1.0: All important questions answered

The easing of restrictions is expected to boost sentiment as it will create opportunities for jobs and incomes.

"Phased reopening of the economy, in line with global trends, will go a long way in boosting business confidence apart from opening opportunities for jobs and incomes," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"It is important to understand that the unprecedented high global unemployment is the product of the great lockdown and not due to any economic crisis. Therefore, we can expect jobs and incomes to bounce back sharply. However, managing the spread of the disease arising out of opening would be a challenge," he added.

While the impact of COVID-19 was visible in Q4FY20, it will likely peak in Q1FY21 along with some continued weakness throughout the year. With the gradual opening of the economy, the focus has now shifted to revival from survival.

Also read | Decoding GDP data: India’s economy suffered a double whammy last fiscal and the worst is yet to come

Experts believe that the measures announced by the Centre and the Reserve Bank of India (RBI) will help stem the economy of the country.

"The large liquidity infusion by RBI, the rate cuts and the announced fiscal measures will likely aid the revival of the economy albeit at a slow and steady pace. The execution of these measures already announced would be the key to determine the trajectory of the revival of the Indian economy," said Shibani Sircar Kurian, Senior VP and Head of Equity Research, Kotak Mahindra Asset Management Company.

How the week may pan out for the market

Nair of Geojit Financial Services is of the view that the Indian market will attempt to catch up with the world equity market after being a huge underperformer year-to-date.

"Domestic market will follow the global market given a green sign to open the economy in India and abroad. The medium-term direction of the equity market will depend on the success and effectiveness of the re-opened economy, in which we may underperform. Nifty has closed above its range of 9,500, if it is able to sustain those levels it can go up to 9,800 and otherwise 9,100," Nair said.

On similar lines, Umesh Mehta, Head of Research, Samco Securities is of the view that the GDP numbers were largely discounted so it may not have much impact on the market on June 1.

Also read | Market Week Ahead: 10 key factors that will keep traders busy

"Because of the extraordinary situation we are experiencing, the way GDP numbers are aggregated and tabulated it will be very difficult to read too much from GDP numbers and draw conclusions and inferences for the future. But nonetheless, from the stock market point of view GDP numbers are laggards and therefore are largely discounted," he said.

Aamar Deo Singh, Head Advisory, Angel Broking expects some consolidation during the coming week.

"Last Thursday, being the monthly expiry, shorts appear to have been squeezed out which further propelled the rally. Come Monday, we could witness a consolidation in the markets, post the almost 6 percent week-on-week rally in major indices. Trading with caution is advised next week," he said.

"Indian markets could consolidate next week, taking cues from global markets amidst the ongoing tension between the two largest economies of the word, the USA and China. Further, profit-booking could be witnessed post the almost 25 percent sharp gains over the past couple of months," he added.

Gaurav Garg, Head of Research at CapitalVia Global Research Limited – Investment Advisor, said there may be mild negativity on June 1.

"The GDP figures for the quarter and for the financial year have been disappointing. That too when the full impact of lock-down will be reflected in Q1 GDP data. Considering all this, the market might open at around 9500 and trade with some negative bias," said Garg.

Kurian of Kotak Mahindra Asset Management Company highlighted that the market at present is grappling to understand the full impact of COVID -19 on economic activity and how long it will take for the economy to revive.

"The current market outlook is evolving in nature and hence volatility is likely to continue. A lot would depend on the further spread of the virus in India and globally. As the actual impact on the economy unfolds, it would be important to track the pace of execution of the economic measures already announced and it is also possible that further policy action may be warranted," she said.

"We continue with our disciplined approach to investing. We are focusing on companies with (a) low leverage (b) strong balance sheets and cash position (c) low fixed cost structures, and (d) good quality management and governance. With the current disruption, it is also likely that the pace of consolidation across industries picks up the pace and we would see strong market share shifts towards a few companies," she added.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on May 31, 2020 08:58 am
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