Five days of incessant “stimulus” and the market is left largely unimpressed. More than the 5-day speeches of almost 2 hours each, what mattered to the market today was what Goldman Sachs predicted for the Indian economy.
Goldman economists Prachi Mishra and Andrew Tilton wrote in a note dated May 17 that India will experience its deepest recession ever after a poor run of data underscored the damaging economic impact of lockdowns in the world’s second-most populous nation.
The note said that India’s GDP will contract by an annualized 45% in the second quarter from the prior three months v/s its earlier forecast of a 20% slump. It expects a strong rebound of 20% in Q3 while estimates for Q4 and Q1FY22 remained same at 14% and 6.5% respectively.
What really spooked the market - GDP will fall by 5% in the 2021 fiscal year, which would be deeper than any other recession India has ever experienced.
And to make matters worse, the fourth phase of the lockdown came into place from today and will go on till 31st May. This means economic activity will continue to stagnate. Though some relaxations have come into place, nothing will move till the commercial capital of India, Mumbai gets up and about.
Thus India woke up to a bad Monday morning with Covid cases spiking up to the highest ever and more surge expected in the coming days. To make it worse, the markets tanked – paying no heed to anything which the FM said.
But then again, as we have said time and again, nothing which the FM gave over the past five days will benefit in the short term. So for the “21 lakh crore” stimulus to really start working, India needs to become normal and people start going about their jobs like before. Now that scenario is still a few months away.
The ground reality, which the markets are showing us today is that in the short term, things are bad. Once we all start to learn and live with the Covid and best scenario, once a cure or vaccine comes, only then will things really become normal. Working with Covid, practicing social distancing, with the fear of a deadlier second wave coming, at the moment, the market is reflecting the fear which we all are experiencing.
Having said all this, regarding Goldman’s report – not much attention should be paid to this as recession is not privy to India alone; the entire world is going to see some crazy slump in economy and GDP numbers. Getting alarmed might not help as this is the reality.
Just as we all are currently looking at and living life, one-day-at-a-time, the market is doing the same. Today is a bad day; tomorrow is another day….