Anticipating a surprise GVA performance in Q2 FY21

by Manasi Swamy

India’s real gross value added (GVA) is likely to have contracted by 6.5 per cent during the second quarter of 2020-21 as compared to its level in the corresponding quarter a year ago. While this will mark the second consecutive quarter of GVA contraction, pushing the economy into a technical recession, it will also mean a substantial recovery from the steepest ever contraction of 22.8 per cent suffered in the first quarter.

While the National Statistical Office will release its official estimates later today, we explain our anticipation and reasons for our optimism in the paras below.

The recovery is expected to be driven by the industrial sector, which is estimated to have mitigated its year-on-year contraction to 3.4 per cent in the September 2020 quarter from 35.7 per cent in the June 2020 quarter. Within industry, GVA of the manufacturing sector and electricity are likely to have returned to growth.

We estimate the GVA of manufacturing to have grown by 0.9 per cent in the September 2020 quarter over its year-ago level. The return to growth from a steep 39.3 per cent contraction in the June 2020 quarter can be credited to an extra-ordinary profit performance by listed manufacturing companies amid the Covid-19 pandemic. These reported a 13.7 per cent growth in their operating profit without any significant cut in the wage bill. Consequently, their GVA in real terms grew by 6.9 per cent in the September 2020 quarter. The same had contracted by a steep 32 per cent in the June 2020 quarter. The NSO uses a combination of interim financial performance of listed companies and the Index of Industrial Production (IIP) of manufacturing sector for estimation of its GVA. The manufacturing IIP did fall y-o-y in the September 2020 quarter, but the rate of contraction at 6.8 per cent was much lower than the 40.3 per cent contraction seen in the June quarter.

The electricity sector was the least affected by the Covid-19 lockdown after agriculture. The sector is estimated to have swiftly returned to a 3.6 per cent growth in the September 2020 quarter, buoyed by an improvement in demand and ample availability of coal.

The mining & quarrying sector, which was shrinking since 2017-18, witnessed a steep 23.3 per cent decline in its GVA in the June 2020 quarter. This fall is estimated to have reduced to 5.5 per cent in the September 2020 quarter. Two large components of the mining industry coal and iron ore performed well during the quarter. Coal production grew by 5.5 per cent, while iron ore mining surged to cater to improved demand from domestic steel manufacturers and robust export demand from China. While official data for iron ore mining for the September quarter is not available yet, a 6.9 per cent increase in iron ore freight traffic on Indian Railways and a 47.2 per cent jump in iron ore traffic at major ports confirm the pick-up. Crude oil and natural gas continued to be the laggards with a 5.7 per cent and 10.1 per cent contraction in output, respectively, during the September 2020 quarter.

We estimate GVA of the construction sector to have declined y-o-y by at least 15 per cent in the September 2020 quarter. The two lead indicators - cement production and domestic consumption of finished steel, which the NSO bases its construction GVA estimates on, declined by 10.6 per cent and 9.3 per cent, respectively. A large chunk of this steel demand, in fact, came not from construction, but from the automobiles and white goods industries, which witnessed a pick-up in demand. A 31.6 per cent decline in fresh credit offtake by construction companies from the scheduled commercial banks , along with a slump in industrial & infrastructural project announcements also reflect the weakness in construction activity during the September 2020 quarter.

The agricultural sector had remained unruffled by the lockdown in the June quarter, backed by a bumper rabi crop and aggressive procurement by the government. The story of the agriculture sector remains unchanged in the September 2020 quarter, with kharif sowing registering a 4.8 per cent growth and the government’s advance estimates suggesting a 0.8 per cent rise in kharif foodgrain output over and above last year’s record produce. We therefore estimate agricultural GVA to have risen by 3.1 per cent in the September 2020 quarter.

GVA of the services sector is estimated to report a 9.8 per cent contraction in the September 2020 quarter.

Trade, hotels, transport, storage and communication was the worst hit segment of the Indian economy in the June 2020 quarter due to strict restrictions imposed by the government. The restrictions on air travel, hotels and restaurants were lifted only partially in the September 2020 quarter. Real GVA of listed hotel & restaurant companies plummeted by 78.7 per cent in the September 2020 quarter. Air passenger traffic declined by 77.5 per cent and air cargo traffic by 26.8 per cent. Road transport continued to face hurdles because of lockdowns imposed by state governments and local bodies, which is mirrored in the 15.7 per cent contraction in high speed diesel consumption during the quarter. Railway fright traffic grew by 3.3 per cent, but the same was not the case with passenger traffic. Besides, traffic at major ports also declined by 8.7 per cent in the September 2020 quarter. We therefore estimate GVA from trade, hotels, transport, storage and communication to have contracted by 23.4 per cent in the September 2020 quarter.

GVA of financial, professional services and real estate is estimated to have remained flat y-o-y in the September 2020 quarter. Listed real estate, business services and information technology companies continued to suffer year-on-year contraction in real GVA of the order of 54.2 per cent, 14.8 per cent and 2.3 per cent, respectively. However, banks put up a stellar financial performance, thus negating the impact of the fall suffered by these services on the sectoral GVA.

GVA generated from community, social and personal services is estimated to have contracted by 10.5 per cent in the September 2020 quarter as the Central Government reported a 14.2 per cent contraction in its revenue expenditure excluding interest payments despite having announced a handsome stimulus package to revive the economy.

Thus, without any fiscal help, the Indian economy seems to have alleviated its contraction substantially in the September 2020 quarter.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.9 -3.6
Consumer Sentiments Index
Base September-December 2015
53.2 0.0
Consumer Expectations Index
Base September-December 2015
54.8 0.0
Current Economic Conditions Index
Base September-December 2015
50.7 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Mar 20 Jun 20 Sep 20 Dec 20
New projects 3.80 0.83 1.05 0.86
Completed projects 1.76 0.25 0.72 0.49
Stalled projects 0.73 0.11 0.08 0.30
Revived projects 0.42 0.68 0.36 0.08
Implementation stalled projects 10.18 0.09 0.07 0.12
Updated on: 16 Jan 2021 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 20 Jun 20 Sep 20 Dec 20
All listed Companies
 Income -5.0 -27.6 -6.2 6.7
 Expenses -1.9 -27.9 -10.1 2.7
 Net profit -48.9 -40.2 45.2 26.9
 PAT margin (%) 2.3 5.3 8.3 21.4
 Count of Cos. 4,355 4,347 4,310 64
Non-financial Companies
 Income -9.0 -37.4 -10.4 7.0
 Expenses -4.9 -37.6 -14.0 2.9
 Net profit -50.1 -55.8 29.9 26.9
 PAT margin (%) 3.2 4.5 8.1 21.7
 Net fixed assets 13.3 5.9
 Current assets 3.6 0.8
 Current liabilities 6.2 -2.8
 Borrowings 15.9 8.1
 Reserves & surplus 1.3 4.5
 Count of Cos. 3,239 3,235 3,213 44
Numbers are net of P&E
Updated on: 16 Jan 2021 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.5 0.2
 Expenses 9.9 13.8 0.5
 Net profit -41.0 17.9 -11.9
 PAT margin (%) 2.0 2.2 3.9
 Assets 10.9 9.5 9.2
 Net worth 7.4 8.6 4.8
 RONW (%) 3.4 4.0 5.7
 Count of Cos. 29,264 28,548 9,649
Non-financial Companies
 Income 8.6 14.1 -2.6
 Expenses 8.8 14.3 -1.8
 Net profit -9.5 22.0 -23.7
 PAT margin (%) 2.7 3.0 4.1
 Net fixed assets 7.2 5.4 13.0
 Net worth 6.1 8.3 2.1
 RONW (%) 5.6 6.7 7.2
 Debt / Equity (times) 1.0 1.0 0.8
 Interest cover (times) 2.1 2.3 2.6
 Net working capital cycle (days) 77 70 60
 Count of Cos. 23,680 23,061 7,171
Numbers are net of P&E
Updated on: 14 Jan 2021 10:28AM