What are the factors orchestrating a resurgence in Indian business?

SNAP ANALYSIS
What are the factors orchestrating a resurgence in Indian business?
A man looks at a screen across a road displaying the Sensex on the facade of the Bombay Stock Exchange (BSE) in Mumbai, India. Investors are increasingly focused on the strong fundamentals of the Indian economy as new coronavirus infections decline. Courtesy: Reuters

Business resumption index climbs back to pre-second wave Covid levels with the seventh consecutive week of surge.

India's business activity has climbed back to the pre-second wave Covid levels with the seventh consecutive week of surge - as investors increasingly focus on the strong fundamentals of the Indian economy and new coronavirus infections decline.

The Nomura India Business Resumption Index (NIBRI) for the week ending August 8 accelerated to a record 99.4 amid a decline in the cases of coronavirus disease (Covid-19). Nomura said this was only 4.3 percentage points (pp) below the pre-pandemic levels of March 2020 and back to pre-second wave levels from mid-March.

Labourers pull a cart carrying bags of garlic and onion after the State Government lifts the COVID-19 restriction on the wholesale market in Kolkata. The labour participation rate climbed up to 40.6 percent from 39.5 percent.
Labourers pull a cart carrying bags of garlic and onion after the State Government lifts the COVID-19 restriction on the wholesale market in Kolkata. The labour participation rate climbed up to 40.6 percent from 39.5 percent.Courtesy: ANI

Combination of causes

The consecutive surge was powered by a combination of flattening Covid-19 cases, rising power consumption and improved mobility, the Japanese brokerage said.

Indeed, mobility indicators like Google’s workplace and retail and recreation mobility indices surged by 5.1pp and 7.4pp respectively from the previous week, while the Apple driving index rose by 7.9pp. Power demand rose by 1.4 percent week on week after a superlative 6.9 percent rise the previous week, while the labour participation rate climbed up to 40.6 percent from 39.5 percent, Nomura said - indicating that more people are now looking for jobs, which is likely to push the unemployment rate further up.

Mixed data for July

While data for June continued to largely confirm a sequential improvement on expected lines, early data for July are more mixed, the brokerage said, pointing to higher power demand amid a continued fall in railway freight revenues and lower GST e-way bills in the first week.

Recent acceleration in the pace of vaccination - 4.7 million doses a day in the past seven days as against 3.7 million for the rest of July - and high seroprevalence in some states, could offer some buffer to the economy in the coming weeks.
Recent acceleration in the pace of vaccination - 4.7 million doses a day in the past seven days as against 3.7 million for the rest of July - and high seroprevalence in some states, could offer some buffer to the economy in the coming weeks.Courtesy: ANI

NIBRI, which surged from 62.9 in the week ended May 30 to 86.3 in the week ended June 27, seems to have lost momentum mid-July onwards, and fell to 95 for the week ended August 1, from 95.9 in the previous week. Nomura predicted that the recent acceleration in the pace of vaccination - 4.7 million doses a day in the past seven days as against 3.7 million for the rest of July - and high seroprevalence in some states, could offer some buffer in the coming weeks.

The data, however, varies widely from state to state, depending on the coronavirus situation and ensuing curbs. "Overall, the latest rise in the NIBRI corrects its plateauing since mid-July, and suggests the swifter-than-expected recovery from the second wave slump has continued in early August. Whether the surge in mobility, in turn, triggers a third wave is a key risk that we continue to monitor," the brokerage said.

A worker wearing a PPE kit sprays sanitizer inside the shopping mall premises after the state government announces the third phase of unlocking, in Bengaluru. Retail outlet visits, for instance, could witness a further surge, coupled with the reopening of movie halls across major cities in India.
A worker wearing a PPE kit sprays sanitizer inside the shopping mall premises after the state government announces the third phase of unlocking, in Bengaluru. Retail outlet visits, for instance, could witness a further surge, coupled with the reopening of movie halls across major cities in India.Courtesy: ANI

Impact on retail sectors

That caveat is also manifest in various sectors. Retail outlet visits, for instance, could witness a further surge with movie halls reopening. Inox Leisure said it will reopen cinema halls in several cities including Delhi NCR, Lucknow, Jaipur, Kota, Surat, Anand, Bharuch, Hyderabad and Bengaluru. PVR, the largest cinema chain in the country, said it will reopen its halls in select cities. Significantly, multiplex cinema theatres in malls are key drivers of footfall in these shopping centres. E-way bill data also points to an uptick as the indicator of a proxy for inter-state and intra-state movement of goods.

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