When the unlock phase begins, the government may announce a stimulus package

With the world’s greatest pandemic outbreak threatening the economy’s embryonic recovery, Bernstein predicts that the government would unveil another stimulus package for the hardest-hit sectors, such as small enterprises and self-employed people, at the start of the second phase.

In a note, the brokerage said its macro index predicts a drop in economic activity in April and May.

“Energy consumption has slowed, with power usage down over 4% and oil usage down over 16% in May thus far.” E-waybills are down 16%, indicating a reduction in factory production for several product categories as a result of retail store closures.

“This is limiting the ability to scale up production, even though supply chains aren’t as badly affected,” it said, noting that most regional governments have fewer restrictions on factory operations.

On the other hand, the initial strength in the summer crop sowing season should help support the rural economy while also limiting inflationary risks.

“We believe that when the unlock phase begins, regardless of the ability to spend, the government will announce another stimulus,” Bernstein said, adding that this is standard procedure.

The unorganised end markets, we believe, will continue to be the most impacted sector of the economy. While the impact on the lower middle class remains, we have argued this time that consumer sentiment in the upper middle class may be weak, and that this aspect needs to be addressed,” it said.

A stimulus in the form of loans and guarantees is required anyway, according to the brokerage, as downside support, but the government must improve consumer sentiment.

“Despite what we see in the economy, there is no element of shock this time. Macro is deteriorating but at a slower pace than seen in March-April last year, as economic activity has not fully stalled.

“The risk is the persistence of the weakness for a bit longer, especially because even after the previous phase, the economy was continuing to see some impact even until a few months back, ” Bernstein said.

 

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