The Indian corporate sector has been inching towards normalcy after experiencing major COVID-19 shocks and the consequent nationwide lockdown. The pace of year-on-year revenue contraction reduced to 6.5% from the previous low of 32.6% in the first quarter.
Releasing the findings in a webinar, Shamsher Dewan, Vice President – Corporate Sector Ratings, ICRA said, “During Q2 FY2021, sequential recovery from Q1 FY2021 levels was visible across sectors as the restrictions eased, and some sectors could even bounce back to pre-Covid levels and report revenue growth on a Y-o-Y basis.”
He, however, added that large ticket discretionary purchases in consumer oriented sectors such as leisure travel and lifestyle retail would remain on the back-burner because of risk aversion and general uncertainty. This is in contrast to the demand seen in several other sectors, including passenger vehicles, two-wheelers and consumer durables where it has bounced back over the past few months.
Among other sectors, commodity-oriented sectors such as cement, iron & steel and metals & mining sectors also reported sequential and Y-o-Y recovery, supported by firming up of commodity prices as well as volume expansion; and aided by a pickup in industrial activity.
Industrial and Infrastructure-oriented sectors while exhibiting sequential recovery, are yet to reach their year-ago levels, and contracted by 11% and 14% on a Y-o-Y basis respectively during the quarter. Select sectors such as IT reported muted revenue growth of 4% in INR terms, although organic growth was impacted by deceleration in key verticals. Sectors like pharmaceuticals, power and telecom also recorded Y-o-Y revenue growth.
The analysis further noted that the sequential recovery in performance was visible across many of the key sectors in Q2 FY2021 and has improved further during the current quarter so far. While easing off of lockdown-related restrictions supported this sequential recovery to a large extent, with some pent-up demand also visible, the other supportive factor has been the rural positivity.
Rural sentiment had been positive after two healthy crop cycles of kharif and rabi in 2019, and indications of another bumper crop of kharif 2020 augur well for maintaining this positivity. Hence select sectors like tractors, two-wheelers etc. have witnessed faster recovery vis-à-vis other sectors.
“Other indicators like freight activity, electricity and fuel consumption also indicate a healthy recovery to pre-pandemic levels by the end of Q2 FY2021 and as we progressed further into Q3 FY2021,” it said.
But with some other sectors, the movement has still been slow. Sectors like aviation and hotels continue to face challenges, which are expected to persist over a prolonged period. Daily airline passenger traffic, while improving sequentially over the months, remains at around half of pre-Covid levels, given continued restriction (especially on international travel) and risk aversion towards travel.
Similarly, the hotel sector continues to grapple with historic-low occupancy levels, despite some quarantine-related and healthcare staff traffic diverted to hotels. Recovery in these sectors, the analysis highlighted, is likely to be a longer-term phenomenon, given the discretionary nature of spend, and customer wariness that is likely to continue till a vaccine is made available commercially.
“On the demand side, ICRA expects that India Inc. would gradually revert to normalcy and could sustain improvements in Q3 FY2021, given the seasonally strong festive season. Rural demand continues to be on a positive trend, supported by the normal monsoon, healthy crop outputs, and Government support in the form of increased MNREGA allocations, MSME guarantee loans, etc. The recovery is expected to continue to be rural-led, while urban India would gradually catch up,” added Dewan.
He said that the sustainability of the recovery post during the ongoing festive season would remain critical in determining the overall macroeconomic recovery trajectory. “Additionally, the occurrence of a second or third wave of pandemic can reverse the recovery reported so far, in the absence of a vaccine,” he cautioned.
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