Pent-up demand can make consumption consumption sustainable | Demand will remain sustainable due to continued consumption in households, demand squeezed in December quarter from festive season

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  • Economic recovery started from festive season giving figures of PMI and GST collections so far in the fourth quarter
  • According to ICICI Securities, the fiscal policy with a focus on capital expenditure of the government is changing the economic environment.

The demand which was suppressed due to Corona has come to light due to the gradual lifting of lockdown and festive season purchases. This is reflected in the strong demand for construction, manufacturing and some consumption sectors. In the third quarter of the current financial year, there was a sharp jump in earnings of companies. The ratio of companies giv ing better and weaker performance than the market expected was 4.3.

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Demand from both manufacturing and services sectors may remain strong

ICICI Securities says that the retail sector’s demand declined in the last quarter but, with the shrinking demand there, the coronavirus infection may gradually come to the fore. Data from the PMI and GST collections in the fourth quarter shows that the economic recovery started from the festive season continues. This also suggests that demand from both the manufacturing and services sectors may remain strong.

Fiscal policy focusing on capital expenditure is changing the economic environment

According to the brokerage firm, the fiscal policy with a focus on capital expenditure of the government is changing the economic environment. This is boosted by the expectation that the economy will be fully back on track with low interest rates, sufficient cash in the banking system and reduction in corona virus infection. For all these reasons, in a positive environment, the demand of companies and home families can become sustainable which came out in the third quarter as suppressed demand.

Construction, Consumption, Double digit growth in manufacturing sector activity

Financial results of India Inc show that in the December quarter, total demand construction, consumption (some FMCG products, auto and paint), manufacturing sector (cement, building material and chemical) saw double digit growth in activity. The telecom sector recorded the highest revenue growth (more than 20%), while the utility sector growth was normal (less than 10%). Sales growth (5-25%) of the domestic pharma companies has been stronger than normal on an annual basis. Apart from retail, leisure, travel and restaurant sectors, weakness in regional cement manufacturing and power sector put pressure on aggregate demand.

Better position on export front; Export of auto, ceramics, chemical increased

On the export front, the demand situation was better. Exports of auto, ceramics, chemical increased. IT services exports remained stable. Exports to the US from the pharma sector declined. The metal and cement sector benefited from the increase in prices. Inventory gains to oil companies.

Increase in private sector investment due to increased government spending remains to be seen

Private investment and consumption will play an important role in making growth sustainable. How much private sector investment has increased due to increased public sector expenditure remains to be seen. At the moment it is also not known how sustainable the consumption of household families can be despite the withdrawal of suppressed demand due to increasing trend of saving in people.

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