Today’s market momentum was driven by uncertainty related to efficacy of Covid vaccine and expectation of Q2 GDP data. Although GDP is expected to improve compared to the previous quarter, the recovery in Indian economy is likely to be lower in comparison to its global peers. Recently, broader markets are outperforming main benchmark showing a shift in demand to mid & small cap. From these high levels, for the market to stay resilient and midcaps to outperform, the economy has to normalize and more stimulus has to be announced, which will take some more time based on the government’s plan and availability of vaccine.

                                       

Today’s market momentum was driven by uncertainty related to efficacy of Covid vaccine and expectation of Q2 GDP data. Although GDP is expected to improve compared to the previous quarter, the recovery in Indian economy is likely to be lower in comparison to its global peers. Recently, broader markets are outperforming main benchmark showing a shift in demand to mid & small cap. From these high levels, for the market to stay resilient and midcaps to outperform, the economy has to normalize and more stimulus has to be announced, which will take some more time based on the government’s plan and availability of vaccine.

We had estimated the contraction in the second-quarter GDP at about 13.5 percent. The leading indicators of the economy did not record significant recovery until September. The trade, hotels and transport sectors did not show much recovery. Recovery in the construction sector was patchy due to the non-availability of migrant labour; manufacturing suffered from both labour shortage and supply disruptions.

Floods in many parts of the country created disruptions in the farm sector, and government expenditure was stagnant. Thus, although the relaxation of the lockdown resulted in an improvement in economic activity to some extent, the capacity utilisation continued to be low.

The expectation is of a contraction of 8.8% in September quarter. But RBI has indicated towards stronger than expected pick up of the economy and our experience on the ground has also been the same. I will not be surprised if the contraction comes to be lower. Anyways, we are expecting a strong recovery in the next financial year.