The equity markets have been volatile with movements on both sides, mainly occasioned by developments abroad. The prospects of the US recovery, the rise in inflationary expectations, the rise in bond yields, have all been factors that influenced the markets in the last two months. One factor which has attracted attention of the markets has been the exit by foreign investors more often compared to the inflows that were seen earlier in the year. The factors that could prompt the overseas investors to become light on their exposure would be the weakening Rupee, the expanding fiscal deficit, the high commodity prices, especially the price of oil which India imports more than any other country except China. Earlier in the year a perspective had emerged that the high commodity prices were going to impact sectoral performance in certain segments of the manufacturing and industry. The conclusion was that due to this factor probably the Q1 performance may be a shade weaker than expected for some corporates.
But a factor that may weigh upon the market in the coming weeks is the second wave of the pandemic, the spread of which is not halted as yet as it is not showing any signs of abating. Many analysts have revised the growth projections downwards against this background, on an average of 1% to 2 %. Some have revised the GDP growth down to a high single digit too. The likely rate of growth for FY 22 will be in the vicinity of 8.50 % to 9%, under the current set of circumstances. The level of corporate profitability and earnings growth is a function of the GDP growth, and any revision downwards of the number may be of certain consequence for earnings too. The monthly output loss due to the pandemic is estimated to be approximately Rs1.25 Lakh Crs. With stringent lockdown in larger parts of the country, and the likelihood of the lockdown getting prolonged for an unspecified time in future the losses are going to accumulate. This, as explained earlier will result in a slowdown of the economy contrary to the swift recovery envisaged earlier. Even these projections assume the re-establishment of normalcy over a three-month time period.
There were several reasons why it was felt that the impact of the second wave could be contained quite well. The first was that the corporates already responded to the first wave quite efficiently and took advantage of the operational efficiencies and reported better numbers in Q3 and Q4 of FY 21. This adds to the level of preparedness on the part of corporates. The second and more important reason is that the RBI is continuing with its accommodative policy and taking all necessary actions well on time. The recent announcement of the Rs.50,000 Crs, special facility for three years for the health care sector, and the Rs.10,000 Crs for small enterprises would further add to the comfort of the industry in enhancing its efforts to combat the adverse effects of the pandemic. The central bank has also initiated the G-SAP 1.0, a plan to buy gilts in the secondary market to the tune of Rs.1 Lakh Crs. The scope of G-SAPS may be widened over a period of time and as also the amounts, based on experience of the first program. The fact that sufficient liquidity will be available to business and industry is a matter that will add to their comfort and also their confidence to tide over the critical period.
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