Moneycontrol Pro Panorama | Locked up at homes, Indians save more for a rainy day

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

One feature of the pandemic has been the increase in household savings. This is owing to the obvious reason of fewer avenues for spending available because of curfews and lockdowns, and because people become uncertain about jobs and incomes. According to Moody’s Analytics, the increase in household savings during the pandemic amounts to around $5.4 trillion, roughly twice India’s GDP.

What about Indian households?

According to the Reserve Bank of India (RBI), the net financial saving of households was 21.4 percent of GDP in the first quarter of financial year 2020-21. Remember this was the quarter when the national lockdown still continued and was at its most stringent. This ratio fell to 10.4 percent of GDP in the July-September quarter, again higher than the normal 7.8 percent rate seen during pre-COVID times.

That’s the latest from RBI. Analysts at Motilal Oswal have tried to mimic RBI methodology using public information and have arrived at a household financial savings to GDP ratio of 8.4 percent for the December quarter. That dip is perhaps not surprising since it coincided with the festival season and the release of pent-up demand.

Now, as we are a nation that loves gold and land (physical assets), the intrepid Motilal researchers also computed the physical savings of households using stamp and registration charges as a proxy. Their calculations showed that physical savings fell to 5.8 percent of GDP in the June quarter, almost half that of pre-COVID levels but recovered to reach a multi-year high of 13.7 percent in the December quarter.

That’s all well and good, but how does India compare with other markets?

The overall household savings to GDP ratio rose to 22.5 percent in calendar year 2020 from 19.8 percent in 2019, a 1.1 times increase. This is the slowest among large nations. The US, for instance, reported a 1.9 times rise and Japan 5.4 times.

With private consumption in India at a level comparable to that of other nations, the slower growth in savings means that income growth here is weaker, argue the analysts.

Moreover, while household savings have risen, gross domestic savings have fallen across countries because of government dis-saving.

What does this mean for economic growth?

Notwithstanding weak income growth, households may be more wary of subsequent waves of the virus, thus leading to a persistent increase in saving for hard times, as we pointed out yesterday.

“A slower rise in household savings, coupled with similar or slower decline in consumption, confirms weak income growth in India. If so, then the contribution of pent-up demand in growth recovery would also be limited in India (compared with other nations),” concluded the Motilal analysts.

Our independent equity research team has written the following reports today for you:

Discovery Series | Goldiam International: Add a gem to your portfolio

Tech Mahindra – One of the best value buys in the IT space

ACC: Why we repose faith in the long-term thesis

A play on likely outperformance of agro-chemical sector in near term

What else are we reading?

Shifting trends in capital goods landscape amid COVID challenges

Economic Recovery Tracker | The COVID-19 shadow grows longer

Blackstone’s renewed commitment to Mphasis comes at a crucial juncture

‘It was utter chaos’: the inside story of football’s Super League own goal (Republished from the FT)

GuruSpeak | Anshul Saigal — A PMS fund manager reveals his secrets for successful stock picking

Our chartists’ technical calls for the day (Please note these calls are published before the markets open on trading days): Axis Bank, SBI Life, Astec Lifesciences and NMDC

Ravi Krishnan

Moneycontrol Pro