Q3FY20 GDP - THE VIRUS MAKES IT IRRELEVANT
On a day when the stock markets, not just in India but all across the world suffered a blood bath, its kind of funny that we look back at growth numbers of Q3FY20. With coronavirus taking center stage, with fears of its becoming a pandemic, the scenario that we are looking at currently is very different, making the Q3 numbers look outdated.
In Q2, the GDP growth has come in at 4.5% and with some green shots sighted, majority of the analysts had predicted a growth of 4.7% for Q3. And that’s exactly what we got – 4.7% and GVA came in at 4.5%. Agriculture pulled on a surprise but shocking performance by the manufacturing and construction sector made one re-look before even saying that we are looking at “green shoots.”
Before the GDP data came in, earlier in the day, Bank Credit grew at its slowest pace since 2017, which in itself was an indication that all the stimulus which the Govt gave is yet to get transmitted to the economy and RBI’s measures to get banks to pass-on the lower interest rates is also yet to show results. So we might have better IIP, manufacturing and services PMI and even an improvement in Q3 GDP numbers but what it all means that these green shoots are yet to get translated into increased demand for bank credit.
But even as we get over this GDP data, the reality is that the virus is indeed wreaking havoc. With China being at the center of a supply chain anywhere in the world, with imports from China and exports to China getting impacted, the world economy is most certainly going to take this on its chin. Today’s rout in the market shows exactly those industries which will face the brunt – metals, capital goods, electronics, textiles, pharma, IT. AS SBI’s economic wing stated, 50% of the 19 categories of imports, come from China alone.
Indian manufacturers use 75% Chinese components for TVs and almost 85% Chinese components for smartphones. Mobile displays, open cell TV panels, open circuit boards, memory and LED chips are all imported from China. Compressors for ACs and motors for washing machines are also sourced from China. Thus the impact on white goods and consumer goods will be big.
More than anything else, it is the fear factor which will be at play. India might be at much lower risk than the other Asian countries but that doesn’t mean we are not at a risk. With the world getting scared, more and more countries getting quarantined, the impact ahead, in Q4 and FY20 is what is worrisome.
Maybe, like the way the market does, we need to discount the current fiscal and look at growth hopes only in FY21. We can shout from the rooftops that coronavirus might not impact India but we don’t really know, isn’t it? Even if the virus thankfully stays out of our country, the fact that other countries are impacted will affect us in this globally connected world will impact our economy too. So for the markets now, the only good news will be news of the virus going away or the world having found a cure to treat it; till then fear will play the music and the markets will gyrate with great volatility while we remain mute spectators.