Mixed tidings PDF Print E-mail
Saturday, 08 August 2020 00:00
AddThis Social Bookmark Button

Shobhana edit

While India Inc was expected to fare badly in the June quarter, given business activity was almost at a standstill during this time, the results have been much worse than expected. To be sure, the economy had been slowing well before the pandemic—GDP grew at an anaemic 4.2% in FY20—with private consumption demand decelerating. With the lockdown stalling all activity, not only were manufacturing and services disrupted, demand too appears to have dipped further with increasing uncertainty surrounding jobs and incomes. While the consumer staples pack turned in a decent performance, most sectors were badly hit. A large number of companies, including Maruti SuzukiTata Motors JSW SteelSpiceJet, TVS Motors, and Interglobe Aviation, reported losses either at an operating level or at the net level.

Some like Bharti Airtel and Vodafone reported large losses as they needed to set aside provisions for regulatory dues. However, many companies have managed to hold on to their operating margins by cutting costs.

IT companies turned in a reasonably good show in the June quarter, winning big deals—evidence that they should bounce back quickly. In fact, the TCS management is confident it can match last December quarter’s rupee revenues in the coming winter quarter. With a rich $7 billion deal haul, Infosys too should be back on track soon.

For a clutch of about 512 companies (excluding banks and financials), revenues fell 33% y-o-y while profits crashed 62% y-o-y, despite the presence of three IT heavyweights. Given this, a big slump in GDP, of over 25% y-o-y for the June quarter, won’t come as a surprise.

The good news is that a host of economic indicators—electricity, e-Way bills, traffic congestion, car and two-wheeler registrations, container traffic, etc—have looked up in July even if they are not yet at pre-Covid levels. This is despite the fact that localised lockdowns continue in many parts of the country. At Larsen & Toubro, the workforce has increased to within 20% of the company’s peak requirements, helping the engineering firm to ramp up execution. Maruti Suzuki indicated demand is back to 85-90% of pre-Covid levels. The automaker is currently producing 4,000 vehicles daily, and production could be ramped up to 4,900 vehicles if another shift is added in Gujarat. Nonetheless, the management commentary has been understandably very cautious given factories are still running below capacity and supply chains are yet to be fully restored. The biggest concern is the loss of jobs and incomes, which could hit consumption badly. As Rajiv Bajaj, MD, Bajaj Auto said, it could be difficult for people to spend Rs 4,000-5,000 a month to buy a vehicle.

As the unlocking progresses, demand should pick up, gaining momentum as the festive season approaches. Sectors such as pharma and consumer staples are expected to continue to do well, but analysts are worried about the country’s banks which are going to bear the brunt of the pandemic.


You are here  : Home Economy Mixed tidings