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India’s economy could do with three quarters of normal economic activity, allowing FY22 to end on a better note. The first quarter of the fiscal bore the brunt of the second wave, even though the economic impact was not as bad as in the first wave.
Our Economic Recovery Tracker update shows monthly data recovering in June, with steel consumption and fuel consumption doing better. Although rail freight dipped over May, whether that’s due to seasonality or other reasons needs to be watched. Freight is a lead indicator for economic activity in the basic sectors of the economy.
A question that has arisen is if the second wave has affected consumption demand more, because it was more widespread and hit lower income groups and small businesses. This week’s data update shows a slip in retail vehicle registrations. Automobile companies have been concerned about rural demand in the wake of the second wave. While pent-up demand may have kept sales up in the past weeks, if there’s stress on consumption then it may become visible in coming months.
But there’s some good news for consumers -- and for the RBI -- on the inflation front. Our chart of the day on inflation shows that the headline number of retail inflation at 6.26 percent in June was only 4 basis points lower than the May figure, but we looked at it differently to see how the momentum has changed compared to the inflation seen in May. The good news is that month-on-month inflation fell across the board. Central banks have been looking for signs that the spike in prices is transitory, and June’s data should give the RBI’s Monetary Policy Committee a reason to be less hawkish.
What about growth, that other worry for policymakers and even more for investors? The Index of Industrial Production (IIP) for May shows the damage done by the second wave. It dropped by 10.1 percent over April, but in absolute terms was still higher than a year ago. But here too, looking beyond the headline number helps.
The break-up shows the mining sector was hardly affected by the second wave. But manufacturing took a hit as companies may have curtailed production in response to lower demand, sick staff and enforcement of distancing measures. The industries that suffered the most were consumer durables (this includes passenger vehicles), capital goods and infrastructure. Consumer non-durables, which include FMCG products, did not suffer much and consumption of essentials was relatively unaffected. Thus, while the recovery momentum may have dulled during the June quarter, the damage is not severe.
While that was about the macro, here are some bottom-up investing insights from our research team.
This leader from auto ancillary pack deserves a place in long-term portfolio
Astra Microwave: Visibility improves, but valuation tempers excitement
Finolex Industries: Long-term prospects look solid
What else are we reading today?
ESG compliance is making IT firms compete to be greener
Has SEBI erred in the Biocon insider trading case?
One nation one ration card – a long way to goThe European school of central banking is no more
(Republished from the FT)
Technical picks: Infosys, Max Financial, DLF and Tata Chemicals (These are published every trading day before markets open and can be read on the app)