Home / Markets / Mark To Market /  Supply to improve post-unlock 1.0; demand pickup could be slower

After a little over two months, the withdrawal of the world's most stringent lockdown, in a phased manner, cheered Indian stock markets. As much of the economy gears up to reopen, supply chains and logistics will allow easier movement of goods through the country. Benchmark indices have soared, with the Nifty rising about 3% on Monday.

While much of the revival hinges heavily on how soon consumption demand picks up, many sectors will beat a slow path towards normalisation in business activity. The lockdown hit businesses hard in April and May. For instance, auto data in April showed demand slipped to even zero in some cases.

Much of that is expected to change as pent up demand is likely to drive some sales in the near future. But a meaningful demand revival is likely to be slow and gradual.

“The opening up is good. Demand revival will take some time to come in because of the furloughs and the impact the pandemic has had across the country. But the wheels of the economy have started to run again, and that’s a positive" said Sanjeev Hota, head of research, Sharekhan.

Urban demand pick-up is likely be slower and will depend on relaxation norms of local authorities. But, as much of the rural economy has been opened up, analysts see the rural economy responding much better.

“With major metros like Delhi, Mumbai, Bengaluru, Chennai, Hyderabad, Kolkata, Pune, Ahmedabad, etc. all coming under the red zone, revival in economic activity and urban demand would take time," said Motilal Oswal Financial Services, in a note to clients.

Some of the sectors that will benefit include banking, financial services and insurance (BFSI). An improvement in collections and loan disbursements is expected, post-unlock 1, which should aid the BFSI sector. Besides, financing of goods is critical for a demand revival in the discretionary space, particularly goods that require major financing. Also, there could be a gradual improvement in asset quality.

Measures such as an increase in allocation toward Mahatma Gandhi National Rural Employment Guarantee Act, 2005, (MNREGA) is expected to improve incomes. So, some rural demand pick-up could be on the cards. In the auto space, for instance, demand for two-wheelers is likely to be better in rural areas. Demand for mobility post social-distancing norms is another factor that will influence auto buying.

While auto dealers will be able to open large-format stores, pent-up demand may benefit. However, demand for spares and batteries is expected to be better in the coming months.

“For OMCs, a pick-up in trucking activities may result in an increase in demand for diesel consumption as trucking accounts for 60-70% of total diesel consumption, supply chain and logistic issues for pharmaceutical companies are expected to ease further and help in improving availability of medicines," said analysts at Motilal Oswal.

Consumer durables may see some resumption in sales though, depending on need and pent-up demand. Hospitals should benefit a bit as outpatient departments (OPDs) have been allowed in various zones. The power sector could see an improvement in plant-load factors, though construction and infrastructure activity could be slower to revive.

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