With states easing restrictions, the industry is looking forward to a growth phase as the second wave of Covid-19 seems to be receding. Although daily vehicle registration, power & fuel demand, e-way bills, etc. are lower compared to the pre-Covid era, sequential improvement is seen in June. On the equities front, equity markets nearly doubled since the pandemic lows. Power and metal sectors have seen a sharp rally in the range of 39-69% in the last 6 months while the FMCG sector has been a relative laggard in CY21. On the other hand, core inflation reading was highest in the last 6 years mainly due to soaring commodity prices. Global equity markets came under pressure recently as US Federal Reserve indicated interest rate hikes earlier than expected. A probable third wave can also impact domestic demand recovery that can, in turn, dampen sentiments (although disruption witnessed during the second wave was lesser compared to the first one).
With many factors at play, the question is –
• How much further gains can be witnessed?
• With vaccination drive leading to anticipation of normalcy, do you bet on recovery plays or has it already been discounted?
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For the first time since the pandemic began, GST collections surpassed Rs. 1 lakh crore mark in a month during October. Reports by private global agencies are also signaling growth in the service as well as the manufacturing sector. Other indicators of economic activity such as auto sales by key OEMs in 2-W and the PV segment have reported 10%+ growth in October, marking the second consecutive month of healthy dispatches. The gradual lifting of restrictions on the vehicular movement led to a surge in demand for transportation fuels which is now higher by 4-6% compared to the pre-Covid level. Retail sales are also in recovery mode in recent months leading up to the festive season with online platforms reporting even better traction. Sensex has recouped losses for CY20 and turned positive on a YTD basis while Nifty is also near-annual high.
However, the sustainability of growth momentum, which is currently being driven by pent-up demand among other factors, is a key monitorable. With Covid-19 inflections on a decline, do you think the current uptrend across sectors will continue?
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Covid-19 outbreak has upset the order of global trade. China, from where the Covid-19 originated, is also the global export hub contributing ~13% of world exports. China’s top exports include electrical equipment, machinery including computers, plastic articles etc. Dependency on China in terms of raw materials and assembly of final product disrupted manufacturing processes. Recently, several tech giants announced the shifting of their manufacturing plants from China to other countries. As for India, its share of global exports is ~2%. In order to boost local manufacturing, the Indian government has announced the Production linked incentives scheme.
Do you think the global supply chain will shift towards other emerging economies? If so, how can India capitalise on this opportunity? Also, does India have the necessary ecosystem in place?
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Globally equity markets (including India) have taken a beating, correcting significantly in a relatively short span of time. A million-dollar question right now, Is it a buying opportunity or an exit indicator to enter later? The novel corona-virus has spread from a few hundred cases being reported pre-dominantly from the Hubei province of China, to all over the world taking the total tally of affected people globally to more than 1,20,000 and the death toll also rising at an alarming rate. It is definitely going to have an impact on global growth. But is it discounted?
Historically, buying at sharp dips has been rewarding as markets recover after initial reaction but timing may be unknown. Do you think this time it’s different?
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> Custom duty to be reduced on imported footwear and furniture to boost domestic manufacturing
> Deduction of Rs. 1,50,000 on loan sanction and tax holiday on profits of developers involved in affordable housing projects to be extended by one year to FY21 – positive for real estate players having exposure to affordable segment
> G-Sec ETF to be floated to promote retail participation in debt markets.
> FPI limit in Corporate Bond Market has been increased from 9% to 15% of the total outstanding.
> Dividend distribution tax abolished, positive for IT companies which have higher dividend payout
>Deposit insurance guarantee increased from Rs. 1 lakh to Rs. 5 lakh. Boost to bank deposit as it raises confidence, though cost could go up marginally for banks
> Focus on digital technologies and e-governance, positive for IT companies
> Implementation of prepaid smart meters in three years and freedom to choose power supplier will lay the ground to bring competition in the power sector. Positive for private power discom companies, smart Meter manufacturing companies, power generation companies
> 2. Rs. 3150 crore set aside for Ministry of Culture to develop 5 new archaeological sites with on-site museum, renovation of other museum among others – positive for tourism
> Rs. 2500 set up for promoting tourism at the state level
> 148km Bengaluru sub-urban transport projects worth 18000 crore, Rs. 1.76 lac crore for transport infrastructure, 100 more airports by 2024. Positive for infrastructure EPC, infrastructure developers and capital goods companies
> 12 lots of highway bundles of ~ 6000 km including Delhi-Mumbai expressways by 2020, 4 station development projects and proposal for 150 private trains is under way
> Setting of large solar power capacity alongside the rail track on land owned by railways. Aim to achieve electrification of 2700 km of track. Rs 22000 crore allocation for power and renewable sector. Positive for solar EPC companies/ Solar generation companies
> Allocation of Rs. 1.7 lakh crore to be provided for transport infrastructure in 2021 – positive for construction companies
>Budget proposes to expand National Gas Grid from 16200 km currently to 27000 km
> Rs. 1480 crore to be allocated towards setting up a National Textiles Technical Mission
> National Logistics Policy to be launched soon that would provide single window e-clearence for transporters. Would provide for scaling up of existing logistics operations. Positive for surface and air logistics players
>2,500 km expressways, 9,000 km economic corridors, 2,000 km coastal roads and 2,000 km strategic highways proposed to be constructed – positive for road based EPC players
>12 lots of highway bundle projects (total 6,000 km) proposed to be monetized before 2024 – positive of companies with BOT assets
> 100 new airports to be developed by 2024 to provide further support to UDAN scheme – Positive for aviation and tourism
>Eradication of Brucella and PPR diseases among cattle by 2025. Beneficial for Animal Health companies
>Viability gap funding (VGF) for setting up hospitals in 112 districts (not having Ayushman scheme empanelled hospitals) by using proceeds from tax on medical devises. Beneficial for hospitals
>Proposal for setting up of medical colleges in existing district hospitals with the help of private hospitals under PPP mode with Viability Gap Funding (VGF). Beneficial for private hospitals
>Government to allow viability gap funding to setup advanced warehouses. Positive for players providing agricultural warehousing
> Rs 99300 cr allocated for education sector for FY21. New education policy to be announced soon
> Allocation of Rs 3.60 Lakh crore and Rs 12300 crore for Jal Jeevan mission and swachh Bharat mission respectively to benefit FMCG, piping industries.
> Rs 3.6 lakh crore allocated for Jal Jivan Mission – Positive for Water EPC players
> Rs. 11,500 crore capital outlay provided for Jal Jivan Mission during 2020-21 – positive for EPC and construction companies
> Agriculture credit target increased 25% YoY from Rs. 12 lakh crore to Rs. 15 lakh crore.
> Govt looking to change existing regime that promotes excessive use of chemical fertilisers – Negative for Urea manufacturers
> PM Kusum scheme expanded for 20 lacs farmers for solar pumps – Beneficiaries KSB pump