Care Ratings pegs Q2 growth improving to (-) 9.9 pc

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November 23, 2020 10:25 PM

The economy is expected to throw up better numbers in the September quarter with GDP contraction of 9.9 per cent

The new lockdowns could "slow the sequential pace of recovery in the next two-three months, following the sharp rebound thus far", the brokerage warned.

The economy is expected to throw up better numbers in the September quarter with GDP contraction of 9.9 per cent, as against 24 per cent in Q1 at the onset of the pandemic, says a report. The government will release the Q2 GDP numbers later this month. In the first contraction since 1980, the economy shrank a full 23.9 per cent in the first quarter of the fiscal after the whole nation was put under a strict lockdown. India’s COVID-19 caseload has crossed 91 lakh, with nearly 1.34 lakh deaths.

“We expect GDP to contract 9.9 per cent in the second quarter, and for the full year to March by 8.2 per cent,” Care Rating said in a note on Monday. From a gross value added point of view, degrowth will be 9.4 per cent in the September quarter, it added. It based its optimism on growth in agriculture, forestry, financial services, real estate and professional services.

In case of agriculture, the report said the main kharif harvest started late September and will carry on till December. Therefore, the good kharif crop expectation will show in the Q3 numbers only, it said. The likely positive impetus in Q2 is based on two factors — anticipation of a pick-up in demand during the festivals and uptick in corporate profit, which though has been more due to the cost-savings rather than top line growth.

In fact, sales growth continued to be negative in Q2 but overall numbers are positive as cost economies have been more on salary bills, power and fuel and selling expenses, combined with a drop in growth in raw material costs due to fall in sales, the report said. The marginal 1 per cent positive growth rate in the financial and other services is driven mainly by banking where growth in deposits has been strong even through credit growth was negative, it added.

It expects manufacturing degrowth to improve to (-) 10 per cent from (-) 39.3 per cent in Q1, and mining and construction at (-) 12 per cent from (-) 30 per cent in Q1. Electricity, gas and water will also recover to (-) 1.5 per cent from (-) 7 per cent in Q1, it said, adding while trade and other services will improve to (-) 27 per cent from (-) 47 per cent in Q1. Meanwhile, Japanese brokerage Nomura said localised lockdowns in various states like Gujarat, Delhi, Madhya Pradesh, Haryana and Himachal Pradesh can slow the economic recovery and the outlook on business resumption remains concerning.

The new lockdowns could “slow the sequential pace of recovery in the next two-three months, following the sharp rebound thus far”, the brokerage warned. Maharashtra on Monday introduced a standard operating protocol for people travelling into the state from the states reporting a resurgence in coronavirus cases.

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