Equity Strategy: Activity at 90%+ of pre-crisis level

By: |
September 21, 2020 8:38 AM

Improvement in 1H Sept was broad-based; urban indicators up consistently; economy holding up well

Broad based indicators such as toll collections, rail and road freight are now consistently higher y-o-y.Broad based indicators such as toll collections, rail and road freight are now consistently higher y-o-y.

Jefferies economic recovery tracker (JRT) improved 1 ppt WoW to cross into 90%+ of pre-COVID for the first time. Even as Covid cases rise, Govt allowing more movement is helping. The long dormant hotel & travel web traffic is seeing pick-up. Broad based indicators such as toll collections, rail and road freight are now consistently higher y-o-y. Our preferred recovery plays are Maruti, DLF, God Prop, Crompton, Kajaria, HDFC and HDFC Bank.

Activity levels cross 90% levels

We track 20 economic high-frequency activity indicators to formulate our India economic activity indicator. Week ending 13th September shows a reading of 90%, +1 ppt WoW and +4% cumulatively over the last four weeks. Despite the surge in COVID cases, the government has continued to open up the economy and the same is reflecting in the data. Activity improvement in 1H September is broad based and we now see long lagging indicators of travel seeing initial recovery signs. Our index uses a combination of agriculture/rural (25%), broader economy (35%) and predominantly urban (40%) indicators.

Urban activity trending up steadily

Improvement in urban indicators is fairly consistent now. Congestion levels, +1 ppt WoW, are up 12 ppt m-o-m. The long dormant hotel & travel web traffic is seeing pick-up. Hotels (+9 ppt m-o-m) and travel bookings (+8 ppt m-o-m) have risen in tandem with flights (domestic nearly half of pre-COVID) and govt. raising long-distance train count by 35% in September. The realty portal traffic (at 85%), auto portal traffic (113%) were flattish WoW, but this coincides with the pre-festive season inauspicious period. Notably, metro rails have opened up over the last few days in several large cities and this will boost commerce.

Few broad data points are up YoY

The broader economy is holding up well in September. The e-way bill generation (+5% against prior Sep) has now seen y-o-y growth for the past 5 weeks. E-toll collections (+1 ppt WoW) are now 1% above pre-COVID levels. Power consumption was up 2% YoY for week. Car/2W registration has weakened WoW but still trending well on y-o-y basis. Unemployment (-40 bps WoW, -10 bps y-o-y) showed some improvement.

Weaker data-points are mostly weekly fluctutations: This week, e-retail transactions were weaker (-8 ppt WoW) and custom collections also weakened (-9% y-o-y). Broadly though, (Tr2wk/4wk) the trend remains positive here.

Rural outlook positive: With 91% of the rainfall season done, monsoon season rainfall is 7% above normal and 86% of the country byarea has received normal or better rains. Sowing levels are at all-time highs (+6% y/y) and a good summer crop is likely.

COVID trend rising, but lock-downs not pursued: Total COVID cases have now risen to 4.9m infections, +15% WoW. Active case additions are near highs at ~15k/day. The authorities though are not advocating lockdowns anymore though social distancing advisories remain in place.

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