COVID-19 second wave impacted mobility & services in May, making it the worst affected month: Nomura report

According to the brokerage, India's growth was in a recovery mode until second wave of COVID-19 hit the country thereby leading to states announcing lockdowns and restrictions.

Both mobility and non-mobility sectors of the economy reflected the impact of the second wave of the COVID-19 pandemic as the business activity level continued to plunge in May, making it the worst affected month, Japanese brokerage firm Nomura said in its latest report.

As per June 3 report published by the brokerage, auto sales took a hit in May as sales of passenger vehicles, two-wheelers and medium and heavy commercial vehicles fell by 75pp (percentage points) from their pre-second wave levels. Tractor sales, a proxy of rural demand declined by 48pp while diesel sales slipped by 27pp from their March levels.

The fall in business activity continues to be driven by a sharp fall in mobility.

It further said that the services was more impacted than manufacturing as the the services PMI (Purchasing Managers’ Index) fell into the contraction zone of 46.1 in May from 54 in April, while the manufacturing PMI moderated to 50.8 from 55.5 in May.

The report further said that the exports remained steady for the month at 19pp above their pre-pandemic levels in May, but the slowdown in domestic demand led to a sharper fall in core imports to 2pp below their pre-pandemic levels.

"The May data show a bigger impact on consumption and services, with manufacturing and the export sector holding steady, and importantly, the hit during the second wave is significantly less than the first wave across-the-board. The bottoming of the mobility indicators at end-May and the calibrated re-opening across states suggests that the worst might be over, although growth will likely rise only gradually in June," the brokerage said.

According to the brokerage, India's growth was in a recovery mode until second wave of COVID-19 hit the country thereby leading to states announcing lockdowns and restrictions. It noted that the impact of the second wave will be evident in the May economic data as more states announced restrictions by the end of April to curb the spread of the pandemic.

"As states relax lockdown restrictions, the growth outlook is likely to be sequentially better in June. Hence, May was most likely the nadir of the growth trajectory in the second wave," Nomura noted.

"For the sharpest hit to growth to be limited to May, it is crucial that the pace of vaccination continues to pick up," the brokerage said.