The surge in COVID-19 infections confirms a “second wave” and the overall affected people in this phase will be higher than the first one, a Japanese brokerage said on Thursday. However, the surge in infections is unlikely to trip the growth recovery courtesy a fast-paced vaccination drive, Nomura said in a note, stressing that the mortality in the second wave is lower than the first.
“The rapid increase in COVID-19 cases across most states suggests that new infections during this second wave could surpass the previous peak. The second wave confirmed,” it said in the note. However, there are silver linings, which include the lockdown measures adopted across various pockets being “less draconian” than the ones adopted in the initial days of the pandemic, where the entire country was put under weeks-long lockdown, the brokerage said.
The vaccination drive is also proceeding fast, it noted, estimating that up to 45 per cent of the population will be receiving the jab by the end of the current year as against an earlier estimate of 30 per cent. The brokerage’s proprietary ‘India Business Resumption Index’ is 5 percentage points below normal as of end-March, it said, pointing that an adverse impact is visible in mobility (particularly in Maharashtra), transportation (passenger) and other contact-based services.
However, power demand remains robust and railway freight revenues continue to rise, suggesting no impact on the industry. The sectors most at risk from a second wave are hospitality and transportation service, it said.
The brokerage said its estimate for a 1 per cent GDP growth in the March quarter, up from 0.4 per cent in the December quarter is on track because the second wave started only in the second half of March. However, if the second wave worsens, as is looking likely, sequential momentum in the June quarter would then likely be weaker and the agency lowered the GDP growth to 32.5 per cent as against a previous estimate of 34.5 per cent.
In case of the worsening, the FY22 GDP growth will come at 12.2 per cent as against the 13.5 per cent projected earlier. It, however, argued that the impact over the medium-term will be negligible because consumers and businesses have adapted to the new normal and the lockdowns are likely to be localised.
The RBI is most likely to maintain the status quo at next week’s policy review given the uncertainty on growth, but should refresh its forward guidance, it said.