With the increase in Covid-19 Cases and upward trending graph of deaths may result in a slower recovery and even may push the Economic growth further down, even the estimates can be in negatives.
S&P Global Ratings, the US based rating agency on May 5 reduced India’s GDP growth forecast for the current financial year to 9.8 percent wherein the agency had a 11percent growth forecast for Apr 21- Mar 22 fiscal year for India due to opening of the economy and other government policies. On account of the second Covid-19 wave, it has derailed the budding recovery in the economy and worsened the credit conditions.
Even the UK based Investment bank, Barclays have also slashed India’s GDP growth projections, and now they have stated that Indian Economy shall grow by 10 percent YoY against 11 percent YoY earlier in FY22.
Barclays said in a statement, ”With more than 4,00,000 new Covid-19 infections per day, India has become the Centre of the global pandemic, an unwelcome position it looks set to hold for some time. The economic costs of the current surge in cases is much lower than last year’s national lockdown, but the bill is rising. In our base case, we now estimate economic losses of $38.4 billion, with restrictions likely in place until the end of June.”
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said in a statement, “The trend of positive news alternating with negative news continues. President Biden’s decision to back waiving intellectual property rights on vaccines is a big positive. This will quicken the vaccination process enabling countries like India to come out of the pandemic faster. But data on daily infections indicate a rise. Also, lockdowns & restrictions on mobility are increasingly impacting the economic recovery.”
According to him, there are two assumptions regarding the peak of the second wave which can be seen anywhere by mid-May or by July.
He further explained ,”If the first scenario plays out, the hit to economic growth will be marginal, say, 1 percent decline from the estimates of 11 percent growth in FY22. In the second scenario, it will be much worse.”
Ambareesh Baliga who is a Market Analyst and Independent Consultant said, ”After a tough FY21, though there were Government sentimental boosters and some sops for this segment, they were trying to get back on track when again got struck by the pandemic. I wonder how many of such businesses will wind up, further creating further pressure on the financial sector.”
Baliga further added, “I will not be surprised if there is a further downgrade of 3-4 percent on the forecasts made at the beginning of the current year 2021.
Baliga stated, “If the markets are holding up despite expectation of a weakening corporate performance as a fallout of the second wave, we would be creating a bubble powered by liquidity. Liquidity is a friend of the trend, but it comes at a price.”
If a more pessimistic scenario is to be considered, where the pandemic is not brought under control soon then it will not only result in the severe economic losses but the mobility restrictions will remain in place until the August end which could give another blow to the FY22 economic growth, which will further slash to 8.8%. The market till now has been in the hopeful range where the economy may not see much impact from the second COVID wave given the current data points.