BackGreen shoots take root as early Q1 results signal recovery trend
Q1 earnings reports and latest data on jobs show that growth is picking upManufacturing activity, although hamstrung by intermittent lockdowns, is also showing a rebound in June and July from a deep contraction in April and May
PremiumEarly signs of a recovery are emerging from quarterly earnings reports and the latest economic and jobs data as businesses crank up production following the easing of the prolonged coronavirus-related lockdown.
Manufacturing activity, although hamstrung by intermittent lockdowns, is also showing a rebound in June and July from a deep contraction in April and May.
But analysts warned the initial gains could be undone if the spike in coronavirus cases leads to more lockdowns.
The IHS Markit Purchasing Managers’ surveys for India showed economic momentum improved in June, reflecting the easing of lockdown curbs during May and June.
“The Indian economy will rebound as the impact of the pandemic recedes, with improving economic growth momentum in the second half of 2020 and positive GDP growth of 6.7% in FY22," said Rajiv Biswas, Asia-Pacific chief economist at IHS Markit.
IHS Markit said on Thursday India’s medium-term economic outlook remains favourable despite a projected economic contraction in FY21. The firm has projected GDP to contract by 6.3% in the year.
“An important positive factor for India is its large and fast-growing middle class, which is helping drive consumer spending. Total Indian consumer spending is forecast to grow 42% between 2020 and 2025, measured in dollar terms at constant prices," the data analytics firm said in a statement.
India’s consumption expenditure will double from $1.6 trillion in 2020 to $3.2 trillion by 2030, measured in constant prices, boosted by strong average annual GDP growth and rapidly rising per capita incomes for the country’s fast-growing middle-class urban households, the company said.
“By 2030, 1.1 billion Indians will have internet access, more than doubling from the estimated 500 million internet users in 2020. The rapid growth of e-commerce and the shift to 4G and 5G smartphone technology will boost home-grown unicorns," said Biswas.
To be sure, Kotak Mahindra Bank in a research note said that in the absence of any major shift in the government’s policies and measures, growth will likely disappoint over the medium term.
Still, better-than-estimated June quarterly earnings from the few software services, consumer packaged goods and financial services firms have bolstered hopes that Indian companies may recover faster than previously expected.
Several firms in these sectors have beaten Street expectations in the June quarter. Among software companies, Infosys, Wipro, L&T Infotech and Mindtree reported sequential margin expansion. FMCG firm Hindustan Unilever Ltd reported a 7% year-on-year increase in profit at ₹1,881 crore. In the banking space, the country’s largest private lender HDFC Bank reported a healthy 21% year-on-year growth in loan book. The bank also reported a healthy 20% year growth in profit.
While the trends are encouraging, analysts warned it could be too early to conclude that an earnings recovery will take hold as more than half of BSE 500 firms are yet to announce results. This could also mean the organized sector has withstood the crisis better.
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