A lot has been spoken about what is happening to the second wave and the mini lockdowns. What do you think will be the impact in the near term?
We have looked at a number of high frequency data points which clearly indicates a very positive trend as the current lockdowns are of lower stringency. Therefore across most parameters, whether we are looking at power consumption or even mobility levels or sales volumes of products like tractors and two-wheelers, while there is a dip in the momentum in terms of sales both at wholesale as well as retail levels, they are significantly above pre-Covid levels or that during the first wave.
This shows the resilience that most of the sectors have built in. They are much better prepared today for the second wave as compared to what they were during the first wave. So, from a supply chain and logistics point of view, it is extremely positive. We do believe that there would be some kind of a momentum above but we believe a catch up can happen in the second half of the year. There are indicators which show some kind of positivity will support the recovery curve. We are therefore maintaining that if most of the lockdowns in the larger cities get over by May end, revenue growth for India Inc. could be close to 13% to 15%.
In a lockdown situation, cash flows for a lot of MSME players get impacted and salary cuts tend to happen for a month or so. Do you think another round of moratorium would be needed if things get controlled in May?
We believe cash flow mismatches happen and larger players have shown much more resilience than the MSME players as reflected in the results posted by large, mid sized and smaller players over the last one year. Therefore higher support is needed from the MSME point of view. That has been a clear learning from the last one year.
We believe that localised lockdowns reduced the impact substantially and we also believe that given that the world now is in different phases of lockdowns, some kind of support is being seen in specific categories. Exports have continued to maintain momentum and are providing support to the domestic industry because growth rates as well as absolute numbers are showing significantly higher numbers than what was getting reported last year. So in a way support to MSMEs which have export exposures would come out from that side.
Coming to working capital requirements, a lot of resilience was shown across corporate India last year but definitely MSMEs would require higher support or are worse off as compared to the mid and the large corporates. But the localised nature of the lockdowns in a way provide some kind of a respite in terms of the amount or extent of impact.
The virus spreading to rural areas is putting pressure on healthcare infra as well. What could be the impact on agri GDP?
Quantifying agri GDP is very difficult at this time because a lot of it would be linked to how the monsoons play out. But we have seen an impact looking at numbers. The share of Covid cases is much higher in rural districts during the second wave. For example, last year after three months of the wave beginning somewhere around June, we had only 16% of the new cases coming from rural areas. By the end of April this year, almost 30% of the new cases were coming from rural areas and the percentage keeps climbing up.
So clearly there is a difference and the spread in the rural areas is much higher. We believe that some of the indicators are showing an impact of that also. For example, mandi arrivals of rabi crops show that in the perishable category, prices are climbing up and we have also seen arrivals getting impacted in terms of reported data of mandi arrivals. April also saw that impact and we therefore believe that impact on the rural side can be much higher than what we saw in the first wave. This in turn will to a certain extent impact consumption of categories where support was provided during the first wave.
A global wave has the potential impact on manufacturing which would be less devastating now as the vaccine starts to pick up pace. The vaccination drive is still slow in India. What is your view in terms of the impact on manufacturing activity?
So we have looked at announced capacities of manufacturers in line with commentaries coming in from players in terms of time periods taken to set up those capacities assuming a delay of around one-and-a-half to two months in terms of the announced plans as on today.
If we look at the capacity ramp-ups plus support that might come up in the interim from imports, we believe that 50% of our population can be targeted to be vaccinated by December. That will be a very good scenario to work with. We also believe that if the ramp-up can be faster than we are expecting right now and if this percentage of 50% of the population happens more towards or just before the festive period, that can have a huge impact in terms of the sentiment in the market just before the festive season sets in.
Second, the way the vaccination is done is also going to drive that entire impact. For example, if urban areas which are the top 20-25 districts or/the tier I cities of our country are vaccinated and there is a high probability of that that a large proportion of the target population would get vaccinated before the festive season, that would bring in a lot of cheer thus helping us to have that traction in terms of pent-up demand being closed in the second half of the year. We believe that the vaccination drive is very critical.
Do you think top banks and NBFCs are well prepared in terms of provisioning that they had done earlier? Some of the large ones have 0.4-0.6% of their books already provided for in terms of Covid provisioning. Is that side taken care of at least for one or two quarters?
We believe that there has been enough amount of caution especially on the banking side. It is different for NBFCs depending on whether they are listed or unlisted. Also there would be a difference in terms of the way or the amount of caution they would have factored into their books.
But on the banking side, clearly provisioning has been done and there was a lot of preparedness. However, I would like to mention that the nature of the impact is going to be very different.
During the first wave there was a genuine issue in terms of chaos, lack of preparedness and therefore uncertainty being extremely high both in the minds of the consumer as well as bankers. Therefore, the level of caution was much-much higher. Whatever impact we saw on collection efficiency was driven more by the consumer than any issues on the banker side.
This time around, a number of people have been impacted and that has resulted in a supply side issue which means today the consumer is much more certain of what he wants to do but the uncertainty is coming because the number of people who are on the ground to ensure better collection efficiency are not there because of the kind of spread that we have seen of the virus. We believe resilience should flow in as we move into the next quarter in terms of collection efficiencies. One should ideally see a much faster recovery in terms of collection efficiencies.
Do you expect pent-up demand once things restart this time around also?
There is no single rule. Last time, FMCGs were extremely resilient. Support came from the rural markets. This time we believe it would be the other way round. We would start seeing support coming from the urban market. Salary levels have normalised for any sector that is linked to the export side. We are already seeing signs of that in numbers which are being reported by IT services players.
That confidence would flow into the salary levels of IT services employees and in turn their spending capabilities. This time, the urban markets would support the recovery curve and one will see those categories of products seeing much sharper recovery curves rather than the ones which are dependent on the rural side. We would be a little cautious on rural till we see a complete synching in of the monsoons.
