COVID-19 crisis: Recovery depends on course of pandemic, says India Inc

By: |
August 10, 2020 6:15 AM

The good news is that despite local lockdowns, several economic indicators — e-way bills, electricity, and registrations of cars and two-wheelers, container traffic have started looking up. 

They have also cautioned that the high frequency data for June and July don’t reflect the full picture since some of it is simply the pent-up demand getting fulfilled.

Corporate India’s Q1FY21 results were marked by severe disruptions to the supply chain as also demand, with much of the country locked down for most of the time. To that extent the numbers are less helpful than the commentary in giving us a sense of what to expect in the rest of the year.

Nonetheless, the losses are staggering, exacerbated by the regulatory provisions made by the telcos, and it will take an exceptional performance in the rest of the year to reverse the trend. As of now, the Nifty companies are expected to report a 5-10% drop in profits for 2020-21 before rebounding smartly in 2021-22.

The good news is that despite local lockdowns, several economic indicators — e-way bills, electricity, and registrations of cars and two-wheelers, container traffic have started looking up.  Moreover, capacity utilisation at factories, too, is increasing as migrant labourers return.

Nonetheless, the management commentary has been cautious with CEOs reminding us that the growth trajectory will depend on how soon the pandemic subsides and how quickly business activity picks up.

They have also cautioned that the high frequency data for June and July don’t reflect the full picture since some of it is simply the pent-up demand getting fulfilled. The numbers, they say, could taper off. CEOs have also pointed out that with thousands losing their jobs in Covid-impacted sectors such as civil aviation, hospitality, tourism, trade and retail, the cap or cut in incomes in many companies, the near-total absence of fresh investments by the private sector and also increasing automation and digitisation demand is bound to remain weak.

The Indian economy is expected to contract by anywhere between 6% and 9% in 2020-21. The big concern is that with banks being allowed to implement a one-time restructuring for Covid-hit companies, the true financial position of these businesses will be unclear for almost two years unless banks choose to disclose the details regularly.

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