Moneycontrol PRO
you are here: HomeNewsBusiness

Surge in equity markets not linked to economic recovery: SBI economists

They also warned that banks will start reporting higher non-performing assets (NPAs) after September, once the six-month moratorium on loan repayment ends.

June 29, 2020 / 02:54 PM IST
  • bselive
  • nselive
Todays L/H

SBI's economists, on June 29, said the surge in equity markets was not linked to economic recovery and may be a sign of irrational exuberance. Adding to it, they also pitch for a second round of fiscal support to help the impacted sectors.

They also warned that banks will start reporting higher non-performing assets (NPAs) after September, once the six-month moratorium on loan repayment ends.

The markets shed over a fifth of their value in the early days of the COVID-19 pandemic and have recouped some of the losses in the last few weeks. Interestingly, the gains happened even as the chorus of a contraction in GDP started among the analysts, wherein some expect a negative growth of up to 5 per cent in 2020-21.

There is a weak linkage between buoyant markets and economic recovery and the phenomenon largely reflects “irrational exuberance”, the economists wrote in a note, attributing the same to easy liquidity made available by RBI.

“Beautiful markets do not signify a beautiful economy,” they said.

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more

They also seemed to suggest that India cannot rely a lot on agriculture to boost the overall GDP growth, pointing out that even if the farm sector's historically best performance of 15.6 per cent growth in 1951-52 were to be considered, a similar performance can only help the GDP growth by 2 percentage points.

“We must think of a second round of fiscal support at least for the beleaguered sectors,” the note said.

It can be noted that the government has already announced a Rs 20 lakh crore package, but the actual fiscal expenditure will be just a tenth of the package.

The note said deposits in bank accounts are fast outpacing borrowings at present, and added that a large part of Indian population depends on interest from deposits because of the lack of a social security base in the country.

There is an interesting shift in possible consumer behaviour during lockdown that could have wider positive ramifications for the India banking system, it said, adding that transactions per credit or debit cards have declined and it is also possible that the purchases have shifted to daily essentials from luxury items.

Per card transactions have declined from as high as Rs 12,000 to Rs 3,600 in the case of credit cards and Rs 1,000 to Rs 350 in the case of debit cards, it said.

“Now the question is how much of this consumer deleveraging in April is because of lockdown/lack of business and how much is because of consumers actually maintaining a discipline in consumer behaviour,” it said, adding that this will influence the volumes of NPAs for banks going forward.

It also noted that households have started to use the gold for borrowings lately, and the percentage of secured loans for banks may go up as a result of this trend.

(With PTI inputs)

Moneycontrol News
first published: Jun 29, 2020 01:50 pm