In line with the ongoing trend, SBI Research, in its new Ecowrap report, has revised India's Q2 GDP growth estimate to -10.7% from earlier projection of -12.5% on positive global events and reduction in losses. It said future prognosis will depend on two things - the shape of the recovery from COVID infections and how fast the vaccine is rolled out. The best estimate of full recovery in consumer confidence, it said, can be placed in Q3 FY22. Notably, Global ratings agency Moody's in its report last week also revised India's 2020 GDP target for the fiscal. It expects a contraction of 8.9% as compared to 9.6% earlier.
SBI said its revised analysis is aligned with global cues. "Our estimate of Q2 FY21 is aligned with the economic growth seen by various economies in Q32020. The GDP contraction halved in Q3 compared to Q2 for select 18 economies," said the report.
SBI says the upward revisions reflect faster recovery and these estimates would have been even better if July and August would have shown a little bit of traction. The SBI business activity index shows that there is continuous improvement and Q3 numbers could be even better. However, the extent of recovery in subsequent quarters can only be gauged after the actual Q2 numbers are published.
Assessing the economic situation since the pandemic, SBI said there's no doubt that the economy has suffered and scarring remains. "The MSME sector has borne the brunt of the COVID pandemic and the ECLGS scheme was a shot in the arm. As on March'20 around Rs 14 lakh crore was outstanding to the MSME sector," it said. As per data uploaded by Member Lending Institutions on the ECLGS (Emergency Credit Line Guarantee Scheme) portal, Rs 2.05 lakh crore has been sanctioned under the scheme to 61 lakh borrowers so far. "However, if the overall corpus of the ECLGS scheme stays at Rs 3 lakh crore it could be a constraining factor," said SBI.
The report said corporate results remain good and growth in corporate GVA of 3,640 listed entities is at 22.06 per cent y-o-y for Q2. Talking about the rise in GST collection, SBI says these numbers provide cheer. "In Oct'20, they showed 10% y-o-y growth...the true picture will emerge when GDP data comes," it said. The retail to wholesale passenger vehicle sales percentage, which was 99.5% in May-Oct'19, came down to 83.8 per cent in May-Oct'20, it said.
SBI said there are concerns that "excess inventory" due to tepid sales might raise more problems for dealers. It said the current trends of COVID-19 infection show that COVID cases in India peaked in September. With Unlock 5.0 and festival season till December-end, the chances of a possible second wave will increase. "The fortnight after Diwali will be crucial and we need to carefully monitor the situation. With domestic vaccines entering Phase III and one more phase to go, COVID-19 recovery will be contingent on how fast the vaccine is rolled out and consumer confidence is restored," SBI Research report said.