E
CO
S
COPE
The Economy Observer
3 September 2020
Economic activity in Jul’20 as bad as in Jun’20
Real GDP could decline ~5% YoY in 2QFY21
n
n
n
Our in-house Economic Activity Index (EAI) for India’s real GVA (called EAI-GVA) contracted 5.6% YoY in Jul’20 (similar
decrease was witnessed in Jun’20) – marking its fifth successive monthly decline. Farm activities, however, remained
strong, while the non-farm sector dropped ~7%. Decline in industrial activities was a tad slower, while it was marginally
higher for the services sector.
EAI-GDP index (our in-house measure of the official GDP) also contracted 5.9% YoY in Jul’20, worse than the 3.3%
decline a month ago. Interestingly, while private consumption and total investments decline was slower (v/s the fall in
Jun’20), muted growth in government consumption and sluggish decline in imports led to faster contraction in EAI-GDP
in Jul’20. Excluding government spending, EAI-GDP contracted 8% YoY in Jul’20 (v/s the 6% decline in Jun’20).
Overall, the recovery path seems to have flattened since Jun’20. Not only does our EAI suggest similar contraction in
economic activities in Jul’20, but also few indicators available for Aug’20 indicate that the fall has continued almost
unabated. Consequently, we expect another decline of 4-5% YoY in 2QFY21, before real GDP posts a modest growth in
3QFY21. An important factor to ponder over now is whether economic activity will start growing from Oct-Nov’20 and
continue after the festive season. Since the COVID-19 pandemic is still not contained in the country and partial
lockdowns are being reintroduced, the progress needs to be closely watched.
Preliminary estimates
reveal that India’s EAI for
GVA contracted 5.6% YoY in
Jul’20 (was as worse as in
Jun’20) – marking its fifth
consecutive decline.
n
n
Jul’20 EAI-GVA decline similar to that in Jun’20…:
Preliminary estimates reveal
that India’s EAI for GVA contracted 5.6% YoY in Jul’20 – marking its fifth
consecutive decline – and was as worse as in Jun’20
(Exhibit 1).
Although farm
activities posted double-digit growth for the second successive month, the
services sector declined marginally faster than in Jun’20 (led by slower growth in
fiscal spending), while industrial activities contracted slightly slower than a
month before
(Exhibit 2).
…and EAI-GDP also contracted at a similar pace:
EAI-GDP also fell ~6% YoY in
Jul’20, better than the 3.3% decline in the previous month
(Exhibit 3).
Interestingly, while private consumption expenditure (PCE) and total
investments fell slower (vis-à-vis Jun’20), slower growth in fiscal spending and
lesser contraction in imports led to faster fall in EAI-GDP
(Exhibit 4).
Excluding
government consumption, EAI-GDP contracted 8% YoY in Jul’20, compared to
6% in Jun’20.
Exhibit 2: …due to continued slowdown in non-farm sector
(pp)
4.8
2.0
(0.1)
Agri
Industry
Services
Exhibit 1: India’s EAI-GVA declined 5.6% YoY in Jul’20…
EAI-GVA (% YoY)
6.9 4.4 2.8 1.3 5.7 5.8 4.8 6.6
(4.1)
(5.7) (5.6)
(18.6)
(30.4)
0.6
(9.2)
(10.0)
1.0
(4.3)
(2.5)
0.9
(3.6)
(2.9)
Jul-19
Oct-19
Jan-20
Apr-20
Jul-20
Jul-19
May-20
Jun-20
Jul-20
Please refer to our earlier
report
for details
Contribution of different components to EAI-GVA growth
Source: Various national sources, CEIC, MOFSL
Nikhil Gupta
– Research analyst
(Nikhil.Gupta@MotilalOswal.com)
Yaswi Agrawal
– Research analyst
(Yaswi.Agrawal@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Exhibit 3: EAI-GDP also shrank for fourth straight month…
EAI-GDP (% YoY)
23.2
6.5 3.3 2.4 4.1 5.4 3.3 1.7 4.2
(3.3) (5.9)
(19.2)
(29.5)
Exhibit 4: …led by broad-based weakness
Consumption
(pp)
2.7
4.6
(0.5)
3.7
(13.3)
Investment
Net exports
6.5
(3.4)
(6.6)
3.2
(3.9)
(5.4)
(9.8)
Jul-20
Jul-19
May-20
Jun-20
Jul-20
Jul-19
Oct-19
Jan-20
Apr-20
Please refer to our earlier
report
for details
n
Source: Various national sources, CEIC, MOFSL
While government
consumption continued to
grow, real PCE index
declined 7.6% YoY,
following the 9% fall in the
previous month.
n
n
We expect another decline
of 4-5% YoY in 2QFY21,
before real GDP posts a
modest growth in 3QFY21.
n
Fiscal spending and net exports continued to support in Jul’20…:
Like in the
past few months, the government’s core consumption spending (excluding
interest payments) grew 27% YoY in Jul’20, following growth of 49% YoY in the
previous month. Moreover, India’s external trade continued to add to EAI-GDP
growth, as real imports declined faster than real exports. The positive
contribution in both these components, however, was lesser than in Jun’20.
…but PCE and investments remained weak:
On the contrary, real PCE index
declined 7.6% YoY, following the 9% fall in the previous month. Along with
government consumption, total consumption declined 5.4% YoY in Jul’20, as
against 4.8% decline in Jun’20
(Exhibit 5).
Passenger traffic and foreign tourist
arrivals was almost absent, but petrol sales and consumer automobiles declined
at a slower pace in Jul’20
(Exhibit 13).
Investments also shrank by a fifth,
marking the slowest contraction in the past five months
(Exhibit 6).
While most
indicators showed month-on-month improvement, government investments,
diesel sales and construction activities deteriorated
(Exhibit 14).
Industrial activities drove EAI-GVA decline:
Details of EAI-GVA suggest that
while the farm sector posted double-digit growth for the second straight month,
non-farm sector’s performance remained broadly unchanged. Industrial
activities declined 14.2% YoY in Jul’20, following the 15% fall in the previous
month, while services sector fell 4.3%, as against 4% fall in Jun’20
(Exhibit 7-8).
Faster decline in fuel sales and cement production and slower growth in fiscal
spending offset the slower decline in vehicle sales and better credit growth
(Exhibit 15-16).
Expect 4-5% decline in 2QFY21 real GDP:
Overall, the recovery path seems to
have flattened since Jun’20. Not only does our EAI suggest a similar contraction
in economic activities in Jul’20, but few indicators available for Aug’20 – power
generation and e-way registrations – also hint toward the fall continuing almost
unabated
(Exhibit 9-10).
Although there is no one-to-one correlation between
our EAIs and the official GDP/GVA due to the
underlying differences,
our
composite indices are moving in sync with the official real GDP (ex-
discrepancies) and real GVA estimates
(Exhibit 11-12).
Consequently, we expect
another decline of 4-5% YoY in 2QFY21, before real GDP posts a modest growth
in 3QFY21. An important factor to ponder over now is whether economic
activity will start growing from Oct-Nov’20 and continue after the festive
season. Since the COVID-19 pandemic is still not contained in the country and
partial lockdowns are being reintroduced, the progress needs to be closely
watched.
2
3 September 2020
 Motilal Oswal Financial Services
Exhibit 5: Consumption fell faster at ~5% YoY in Jul’20…
MOLI: Consumption (% YoY)
54.1
Exhibit 6: …and investments continued to decline sharply
MOLI: Investment (% YoY)
0.7
(1.6)
(11.6)(10.7)(12.2)
(4.4) (4.9)
(0.6)
(21.5)
(25.3)
(38.8)
6.2
6.1 7.3 6.2 6.8 6.0 5.8
2.5
(4.8) (5.4)
(20.2)(17.7)
(29.9)
(61.9)
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20 May-20
Jul-20
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20 May-20
Jul-20
Exhibit 7: Industry activities fell for fifth time in Jul’20…
% YoY
20
0
(20)
(40)
(60)
(80)
Jul-19
Oct-19
Jan-20
Apr-20
Jul-20
# including construction
Exhibit 8: …but services sector was held by fiscal spending
10
0
% YoY
3MMA
Services
3MMA
Industry#
(14.2)
(14.9)
(10)
(20)
(30)
Jul-19
Oct-19
Jan-20
Apr-20
(4.0) (4.3)
Jul-20
Exhibit 9: E-way registration fell ~8% YoY in Jul’20…
Daily E-way bill generation
30
0
(30)
(60)
(90)
1.7 1.7 1.7 1.8 1.8 1.8 2.0 1.3
0.3
0.8 1.4 1.6 1.5
Exhibit 10: …and power generation also kept declining
20
(7.4)
10
0
(10)
(20)
(30)
3.9 3.9 3.4 3.4 3.5 3.7 3.9 3.5 3.1 3.6 3.8 3.9 3.8
Daily power generation
In kWh
% YoY
(1.9)
In million
% YoY
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Aug-19 Oct-19 Dec-19 Feb-20 Apr-20
Jun-20 Aug-20
Exhibit 11: EAI-GVA moving in line with official real GVA…
10
8
6
4
2
0
(2)
Composite EAI
Official real GDP*
Exhibit 12: …and is linked with official real GDP* growth also
20
10
0
(% YoY)
Official
Estimated
Real GVA
0.1
(10)
(20)
(%, YoY)
-3.1
(4)
Q1FY15 Q1FY16 Q1FY17 Q1FY18 Q1FY19 Q1FY20 Q1FY21
4-quarter moving average
*Excluding discrepancies
(30)
1QFY15 1QFY16 1QFY17 1QFY18 1QFY19 1QFY20 1QFY21
Source: CEIC, Various official sources, MOSL
(18.3)
(22.8)
3 September 2020
3
 Motilal Oswal Financial Services
Exhibit 13: Key leading indicators for consumption
% YoY
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
1
Passenger
1
traffic
(0.4)
(3.8)
(1.7)
(2.2)
0.4
(1.2)
(1.7)
4.6
(38.0)
(101.1)
(100.6)
(99.5)
(98.0)
Revenue
spending
2
14.3
34.4
26.2
32.0
16.5
31.8
(9.7)
12.7
708.9
23.2
(32.1)
49.3
26.9
Petrol
sales
8.9
9.0
6.3
8.9
9.3
3.3
3.5
11.3
(16.4)
(60.4)
(35.3)
(13.5)
(10.3)
Rural
Consumer
Currency
3
wages durable: IIP
(1.3)
(1.7)
(2.5)
(3.6)
(4.6)
(6.0)
(5.6)
(4.8)
(4.1)
(37.9)
6
(21.1)
6
(6.5)
6
(3.9)
6
(2.4)
(9.7)
(10.5)
(18.9)
(1.4)
(5.6)
(3.7)
(6.2)
(36.8)
(96.0)
(69.4)
(35.5)
(26.9)
6
13.0
12.9
13.6
15.1
12.8
11.9
11.9
11.5
14.5
15.7
18.4
20.6
22.2
Auto
4
sales
(19.3)
(23.4)
(22.3)
(12.6)
(12.4)
(14.2)
(14.6)
(18.1)
(41.7)
(99.4)
(84.0)
(39.8)
(14.0)
Imports
0.5
(2.4)
(4.9)
(5.4)
(4.2)
(5.2)
(3.6)
1.3
(28.5)
(47.5)
(31.9)
(36.4)
(100.0)
5
Foreign
tourists
arrival
1.4
1.6
4.3
6.1
7.8
2.8
1.3
(6.6)
(66.4)
(100.0)
6
(100.0)
6
(100.0)
6
(100.0)
6
Personal
credit
17.0
15.6
16.6
17.2
16.4
15.9
16.9
17.0
15.0
12.1
10.6
10.5
11.2
Services
PMI
53.8
52.4
48.7
49.2
52.7
53.3
55.5
54.5
49.3
5.4
12.6
33.7
34.2
2
Revenue spending
less
interest payments of the central government
Railways and aviation
3
4
Real rural wages; deflated by CPI for rural workers
Includes passenger vehicles and two-wheelers
5
Imports of agricultural items, leather products, newsprint and electronic goods, textiles (excluding gold, silver, precious metals)
6
Our forecasts
Exhibit 14: Key leading indicators for investment
% YoY
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
1
3
5
Auto
Cargo
1
Electricity
sales
2
traffic
2.3
(3.3)
(4.4)
(7.1)
0.4
4.9
2.8
5.7
(10.8)
(30.0)
(22.0)
(10.2)
(7.8)
5.2
(0.9)
(2.6)
(12.2)
(4.9)
(0.0)
3.2
11.5
(8.2)
(22.9)
(14.8)
(10.0)
(2.3)
(17.8)
(25.1)
(24.3)
(14.6)
(6.8)
0.2
(3.8)
(32.1)
(76.8)
Diesel
sales
3.5
(1.1)
(3.1)
(7.3)
9.1
(0.0)
(1.8)
6.2
(24.2)
Capital
goods’
3
imports
(4.4)
(20.1)
(9.4)
(6.1)
(21.8)
(16.5)
6.6
14.1
(16.5)
(54.2)
(33.6)
(42.1)
(37.7)
Cement
Production
7.7
(5.1)
(2.0)
(7.7)
4.3
5.5
5.1
7.8
(25.1)
(85.2)
(21.4)
(6.8)
(13.5)
IIP: Non-
metallic
products
6.9
(4.7)
(2.3)
(9.2)
1.4
2.1
4.2
9.5
(23.7)
(85.3)
(27.7)
(6.9)
(6.7)
2
4
5
IIP:
Capital
goods
(7.0)
(20.9)
(20.5)
(22.4)
(8.9)
(18.3)
(4.4)
(9.6)
(38.8)
(92.6)
(65.2)
(36.9)
(30.6)
5
Industrial Govt Manufacturing
4
PMI
credit
capex
6.1
3.9
2.7
3.4
2.4
1.6
2.5
0.7
0.7
1.7
1.7
2.2
0.8
83.2
36.8
68.9
(5.1)
(12.3)
104.4
(31.8)
(15.7)
(4.4)
(7.5)
57.2
116.2
(47.1)
52.5
51.4
51.4
50.6
51.2
52.7
55.3
54.5
51.8
27.4
30.8
47.2
46.0
(97.1)** (55.5)
(86.4)** (29.3)
(67.4)** (15.4)
(55.9)** (19.3)
Railways and waterways
Machinery and equipment, transport equipment, machine tools and project goods
Includes commercial vehicles and three-wheelers
Capital spending of the central government
Our forecasts
** - Data for total CV sales derived using CV sales of Ashok Leyland, Eicher Motors ltd., and Mahindra & Mahindra Ltd.; the three account for ~50% of all CV
sales
Worse than previous month and a year ago
Worse than the previous month but better than a year ago
Better than the previous month but worse than a year ago
Better than previous month and a year ago
3 September 2020
4
 Motilal Oswal Financial Services
Exhibit 15: Key indicators used in the creation of EAI-GVA on a monthly basis
% YoY
Agriculture and allied activities
IIP: Fertiliser
Domestic tractor sales
Real rural wages
1
Reservoir levels
Agriculture sector
Industrial sector
Coal
Crude oil
Natural gas
IIP: Mining
Mining
Electricity
IIP: Manufacturing
Credit growth
2
Fuel consumption
Manufacturing
Steel production
Cement output
IIP: NMMP
3
IIP: Construction
Construction
Industry
Services sector
Auto sales
Trade credit4
Foreign tourist arrivals
Freight traffic5
Passengers traffic5
MFs AUMs
Fiscal Spending
Real deposits6
Telecom subscribers
PMI: Services
Services sector
Aggregates
Real GVA
Non-farm GVA
1
Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20
1.5
(12.0)
(1.3)
(38.5)
(1.0)
(1.6)
(4.4)
(0.5)
4.9
4.5
5.2
4.8
4.9
5.5
9.7
8.1
7.7
6.9
2.9
2.9
7.4
2.9
(17.2)
(1.7)
13.0
1.2
(8.6)
(5.4)
(3.9)
0.0
(0.5)
(0.9)
(1.7)
2.7
1.1
2.8
3.8
(5.1)
(4.7)
(5.7)
(5.7)
0.3
5.4
(6.4)
(2.5)
19.3
2.8
(20.5)
(5.4)
(4.9)
(8.6)
(6.4)
(2.6)
(4.3)
2.4
(2.9)
(1.0)
(1.4)
(2.0)
(2.3)
(7.0)
(7.0)
(2.9)
(22.4)
5.2
4.3
(4.4)
(1.8)
10.8
32.4
9.0
0.3
(4.3)
5.0
2.8
2.8
2
11.8
(5.5)
(3.6)
36.0
4.0
(17.6)
(5.1)
(5.6)
(8.0)
(5.6)
(12.2)
(5.7)
3.4
(8.8)
(4.8)
(0.5)
(7.7)
(9.2)
(9.7)
(9.7)
(6.6)
(12.8)
5.2
6.1
(7.1)
(2.3)
18.4
27.4
10.2
1.1
(5.7)
4.5
1.3
0.9
13.6
(12.8)
(4.6)
49.4
3.9
(3.5)
(6.0)
(6.4)
1.9
0.2
(4.9)
3.0
1.8
7.8
9.3
7.0
4.3
1.4
(0.7)
(0.7)
5.0
(12.1)
4.0
7.8
0.4
0.2
11.9
11.7
8.9
(1.5)
(1.9)
6.2
5.7
6.0
10.2
4.0
(6.0)
58.7
6.0
6.1
(7.4)
(9.2)
5.7
1.7
(0.0)
(0.3)
(1.1)
(0.0)
2.8
8.7
5.5
2.1
0.2
0.2
1.9
(13.1)
2.9
2.8
4.9
(1.3)
13.0
38.2
6.7
(2.1)
0.2
7.5
5.8
5.7
(0.1)
3.3
(5.6)
65.6
5.8
8.0
(5.3)
(9.0)
4.4
3.1
3.2
1.8
(1.0)
1.8
5.2
1.6
5.1
4.2
(0.3)
(0.3)
3.5
(13.8)
1.2
1.3
2.8
(1.7)
15.1
(15.8)
7.3
(2.2)
6.3
5.3
4.8
4.8
2.9
19.6
(4.8)
55.5
7.2
11.3
(6.4)
(9.6)
9.6
5.0
11.5
3.8
(1.6)
5.3
8.3
2.9
7.8
9.5
2.8
2.8
6.8
(19.1)
4.4
(6.6)
5.7
4.5
15.0
2.1
7.8
(2.0)
9.5
6.3
6.6
6.6
(11.9)
(50.2)
(4.1)
75.2
(0.1)
4.0
(5.5)
(15.1)
(1.3)
(1.7)
(8.2)
(22.8)
0.3
(19.1)
(22.3)
(21.9)
(25.1)
(23.7)
(24.3)
(24.3)
(19.8)
(45.0)
4.2
(66.4)
(10.8)
(38.1)
(6.8)
173.4
7.4
(0.5)
(5.2)
3.6
(4.1)
(4.6)
(4.5)
(80.1)
(38.0)
65.9
(5.2)
(15.5)
(6.4)
(19.9)
(27.0)
(18.0)
(22.9)
(67.1)
3.4
(48.6)
(67.8)
(82.8)
(85.2)
(85.3)
(84.7)
(84.7)
(63.8)
(99.8)#
9.2
(100.0)
(30.0)
(101.2)
(1.9)
21.1
11.7
(1.2)
(89.4)
(19.6)
(30.4)
(33.2)
8
8
7.5
0.5
(21.2)
83.1
6.0
(14.0)
(7.1)
(16.8)
(20.5)
(14.7)
(14.8)
(38.4)
5.2
(22.1)
(34.4)
(43.1)
(21.4)
(27.7)
(40.7)
(40.7)
(32.4)
(84.1)#
9.8
(100.0)
(22.0)
(100.6)
(2.0)
(21.9)
14.4
(1.6)
(74.9)
(16.2)
(18.6)
(21.2)
8
8
4.2
20.2
(6.6)
8
6.9
35.9
(3.9)
8
115.7
10.4
(15.5)
(6.0)
(12.0)
(12.7)
(10.0)
4.1
(9.9)
(13.4)
(25.4)
(6.8)
(6.9)
71.5
10.1
(5.7)
(4.9)
(10.2)
8
(19.8) (16.8)
(8.5)
(2.3)
(17.1) (16.1)
1.4
8
(16.2)
(15.9)
(16.4)
(13.5)
(6.7)
8
8
8
(21.3) (17.0)
(21.3) (17.0)
(14.9)
(41.5)#
8.1
(100.0)
(10.2)
(99.4)
7.0
59.4
11.7
(2.2) 8
(32.1)
(4.0)
(5.7)
(7.5)
8
(14.2)
(16.6)#
9.8
(100.0)
(7.8)
(98.0)
11.2
9.5
12.7
(1.6) 8
(36.4)
(4.3)
(5.6)
(6.8)
8
(19.2) (23.5)
9.7
1.4
2.3
(0.4)
5.2
24.3
8.3
0.8
(0.7)
7.4
6.9
7.6
4.9
1.6
(3.3)
(3.9)
(0.1)
33.2
8.5
0.2
1.7
6.4
4.4
4.7
Rural wages; deflated by CPI for rural workers
Banks’ industrial credit growth; deflated by WPI
3
4
Non-metallic minerals products (NMMP)
Bank’s non-food trade credit; deflated by WPI
5
6
Railways and aviation
Total non-interest spending by the central government; deflated by WPI
7
8
Bank deposits; deflated by WPI
Our forecasts
# Sale of commercial vehicles within total auto Sales has been derived using CV sales of Ashok Leyland, Eicher Motors ltd., and Mahindra &
Mahindra Ltd.; the three account for ~50% of all CV sales
Worse than previous month and a year ago
Worse than the previous month but better than a year ago
Better than the previous month but worse than a year ago
Better than previous month and a year ago
3 September 2020
5
 Motilal Oswal Financial Services
NOTES
3 September 2020
6
 Motilal Oswal Financial Services
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
*In
case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30
days take appropriate measures to make the recommendation consistent with the investment rating legend.
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Companies where there is interest
Analyst ownership of the stock
No
A graph of daily closing prices of securities is available at
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Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
3 September 2020
7
 Motilal Oswal Financial Services
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* MOFSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company
Law Tribunal, Mumbai Bench.
3 September 2020
8