The stock market rally over the last seven trading sessions — where the Sensex jumped 2,536 points, or 6.7 per cent, to close at a seven-month high of 40,509 or at pre-Covid levels in February — coincides with the fact that a number of consumption-related economic indicators have surpassed the February or pre-Covid levels.
Data shows that in September, demand for fuel and electricity — among the major indicators of economic activity — too surpassed February levels. While the stock markets have cheered the better-than-expected recovery of economic activity across sectors — barring few such as tourism, airlines and hospitality — research houses now say that this has led to expectations of upward revision in GDP growth for FY21.
In September, consumption of steel, toll collection, sale of tractors, passenger vehicles and two-wheelers among others surpassed pre-Covid levels seen in February. While data from the Reserve Bank of India, Finance Ministry and market sources indicate an uneven pace of recovery across sectors, several key segments of the economy such as IT, pharma, automobiles and retail have shown robust recovery.
Spending on electricity, which is strongly related to overall economic activity has also seen an uptick. According to the RBI’s latest data on high frequency indicators, electricity demand that had slumped to 82 in April, from a base level of 100 in February 2020, surpassed the February levels in September to reach 108.
Fuel consumption, a prime indicator of normalisation of people movement across the country, witnessed a recovery last month, with petrol sales rising3.3 per cent compared to the year-ago period. Diesel demand too somewhat recovered, but was still 6 per cent below diesel consumption in September 2019. Diesel consumption had declined by 20 per cent year-on-year in August.
Executives at oil marketing companies have noted that the demand for diesel is expected to reach near pre-Covid levels by the end of the year. Rising fuel demand is expectedly accompanied by toll count and collections surpassing their pre-Covid levels levels in September.
On the other hand, state-owned banks, energy companies, tourism and hospitality, and the informal economy continue to await revival in demand. While the banking sector continues to see muted credit growth amid expectations of rising non-performing assets (NPAs), domestic air passenger traffic, domestic air cargo, port cargo, and exports and imports continue to remain below the February base levels.
If the strong vehicle sales numbers for September show uptick in factory output across the auto sector value chain, TCS announcing a strong performance for the quarter ended September lifted the stock prices of leading IT companies last week.
The E-way bills jumped 10 per cent in September and the power demand too has witnessed a double-digit growth. A report prepared by Credit Suisse said that faster-than-expected normalisation has led to the expectation that FY21 GDP growth expectations may see upward revision now.
In September, Maruti Suzuki announced a 33.9 per cent jump in its passenger vehicles sales in the domestic market. It sold 1,47,912 units — its highest monthly sales in 24 months, i.e since September 2019. Even Hyundai Motor reported a 23.6 per cent rise in sales over the corresponding year-ago month. Among two wheelers, Hero MotoCorp announced sale of 7,15,718 units and registered a growth of 16.9 per cent over the same period last year.
The jump in vehicle sales signals pent-up demand as well as rise in private mode of transportation due to Covid-19, the Finance Ministry noted in its economic review for September.
Tractor sales have also surpassed September 2019 levels as the rural economy has been relatively resilient on the back of healthy kharif output. For instance, M&M’s domestic tractor sales in September 2020 rose to 42,361 units, as against 36,046 units in September 2019. Tractor sales have shown a steady pick over the months since April.
Among the areas facing challenges, hotels, tourism and hospitality are on the top. In India, tourism’s share in gross domestic product (GDP) has been declining over the last 10 years, but the contribution of tourism to employment increased somewhat, from 10 per cent in FY10 to 13 per cent in FY19, as per a latest World Bank report on Covid-19 impact on South Asian economies. The strict local containment measures and the pandemic’s impact on global travel have resulted in a significant decline in tourist arrivals in Bhutan, India, Nepal, Sri Lanka, and Maldives, it said.
The World Bank report also noted decline in mobility in India. “From Facebook Data for Good, which utilises information about Facebook usage in specific areas, one can assess changes in mobility during the Covid-19 pandemic at high spatial granularity … In India, mobility declined strongly nearly everywhere: for around a third of the total districts the average decline was between 20 and 30 per cent, for half of them it declined between 30 and 35 per cent, and for 15 per cent it declined even more,” the report noted.
Banks are the other trouble spots in the economy — credit growth continued to moderate in the first six months of this year to reach 5.3 per cent as on September 11 — down from double-digit expansion last year.
Bank credit to commercial sector saw a growth of 5.4 per cent, mirroring weak credit demand and increased risk aversion in the banking system, according to the Finance Ministry.
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