July data indicates consumption may be stagnating amid Covid-19 crisis

High frequency indicators and analyst commentary suggest that July might have fewer positive surprises on the economic front.

Analysts have cut earnings estimates more sharply for consumption-oriented companies, even as many other indicators show signs of stagnation.

They have reduced earnings expectations by 8.8 per cent for the blue-chip Nifty50 index since the beginning of June. But the cuts are larger (11.4 per cent) for the Nifty India Consumption index, which tracks consumption-oriented companies. A less optimistic picture on consumption seems to have emerged in recent times with the sporadic resumption of lockdowns in many places, including Bengaluru, as Covid-19 cases rise.

This seems in line with a moderation in the recovery seen after unlocking began in June. The latest numbers show some stagnation in high frequency weekly indicators tracked by Business Standard.

Visits to commercial areas were around 15 per cent of normal at the height of the lockdown, show data from Google’s mobility reports. This improved to slightly over 40 per cent. However, it has remained at these levels for weeks now. People are largely stepping out for essentials, which has caused grocery and pharmacy visits to nearly normalise, though other categories still lag.

Traffic congestion in Mumbai and Delhi has plateaued. It had improved after the initial lockdown. Pollution levels have accordingly seen a decline. It is down by over a third in Delhi and over 90 per cent in Mumbai.

Meanwhile, power generation is close to levels seen in 2019. Internet speeds are also at a high as more people went to work.

The Indian Railways is carrying more goods after significant declines during the lockdown. However, numbers show a moderation in the improvement. Current levels show an 8.8 per cent decline in quantity of goods carried, compared with the same period last year. 

A recent India Market Strategy note from Credit Suisse — authored by research analysts, including Neelkanth Mishra, Abhay Khaitan and Prateek Singh — noted that shutdowns could affect more places as the Covid-19 spreads. This could also affect the rural economy, which has shown signs of resilience, according to the researchers even as the indicators that show stagnation have an urban bias.

“Several economic indicators are marginally worse in July. The economy may be stagnating at a lower level than earlier anticipated,” the researchers said.