Mutual Fund Industry
| May 12
April 2020, a month which will probably go down in history as a full month of close-to-zero economic activity in India. While things started closing up only half way through March, the real lockdown started in the last week. Even as we look forward in May, there are clear indications that the lockdown will be lifted, albeit in phases. Which means, logically April should then be our worst month ever. Do we still look at the numbers or rather be like an ostrich and shy away from the brutal truth? Well, to resolve any problem, you need a starting point and an idea of the depth of the distress per se. With that intent, let’s roll up our sleeves and see how bad was April. Mind you, some numbers can be pretty disturbing and we do not recommend it for the faint hearted.
Spike in unemployment rate
As was to be expected, when staring at weeks of zero revenue generation quite a few businesses ended up announcing job cuts across the board. The unemployment rate jumped from 8.74% at the end of March to a whopping 23.52% in the end of April. The fact that densely populated urban areas are more hit by coronavirus was reflected in the higher number of 29.22% as compared to 26.16% in rural areas. This number could worsen as and when businesses gradually open, analyse the extent of damage and figure out a way forward in a leaner form. Especially when considering urban areas, it could still be a while before migrant labour feel confident enough to make their way back or even for large scale production activity in closed confined spaces to take place.
PMI Index shrunk to never before seen levels
The PMI or the Purchasing Managers Index is a reflection of the amount of output generation and often seen as an indication of economic direction towards expansion or contraction. It is separately measured for Manufacturing and for Services. India’s manufacturing PMI dropped from 51.8 in March to a record low of 27.4. If you think this is bad, wait till you hear about the Services PMI, with the knowledge that services contribute 55% to India’s GDP. Services PMI fell from 49.3 in March to a pitiful 5.4. No, we did not miss a digit there. When we looked at the graph, the drop literally reminded us of one of those heart-stopping, hair-raising, scary roller coaster rides. Let’s hope we also feel the adrenaline rush from having endured that drop as we work our way out of this pit.
Zero retail sales for auto industry
Yes, another statistic for the history books. Fifty years or maybe a century down the line, future generations might just be consuming history through some medium in futuristic cars, trying to digest a full month of zero car sales! Many auto players are letting everyone assume it was zero, choosing to just forget the month ever existed. On the other hand, there are some players like Mahindra which reported feeble tractor sales and Maruti which reported some numbers for export. For all other practical purposes, the auto industry was probably the poster child of the lockdown with zero sales to report.
What will India’s GDP growth rate in FY21 look like?
When as a country we have off-late struggled to reach a consensus on the GDP figures post facto, you can just imagine the number of opinions floating when it comes to estimates. Most GDP estimates for FY21 have been revised on the downward spiral with each announcement of a lockdown extension. Looking at a range of estimates, currently the most pessimistic outlook and the latest downward revision seems to come from Nomura which has forecasted a contraction of 5.2% in economic output as compared to FY20. The most ambitious figures come from ADB or Asian Development Bank where the last number was a very optimistic growth of 4%. Our view? Considering the lockdown is on it’s way out, we wager it will fall somewhere in the spectrum of -5.2% - 4%!
Movement in the Mutual Fund industry
One of the biggest factors to play it’s part in the month of April 2020 was most definitely sentiment. The doom, gloom and overall uncertainty meant that investors were far more cautious with the money that they were looking to invest. The total Assets Under Management or AUM of the mutual fund industry increased from Rs. 22.26 Lakh Crore in March to Rs. 23.93 Lakh Crore, mostly on the back of increased valuations in April. The net inflows to equity almost halved to Rs. 6212.96 Crore from Rs. 11,723 Crores just a month back. The good part is that the drop in SIP inflows was literally that – a drop in the ocean at 3% with monthly inflows falling from Rs. 8641 Crores to Rs. 8376 Crores. As for debt funds, the safer ones like liquid funds, overnight funds, money market funds and banking and PSU funds saw net inflows. Predictably, resulting from the Franklin Templeton’s winding up of six debt schemes on 23rd April, credit risk funds saw a massive outflow of Rs. 19238 Crores! All in all, it was a month full of movement in equity and debt markets.
One question that a lot of us would want answered is when will all this come to an end? Are we anywhere close to the worst, be it in terms of infections or market scenario? With the signs of the lockdown beginning to be lifted across the world, most governments seem to now have more of a handle and more experience dealing with the disease lending to more confidence in balancing out some economic activity too. Multiple teams all over the globe are racing to find a cure or a vaccine. While, the worst can be known only in hindsight, with each passing day we are getting closer to an equilibrium and restoring a sustainable solution. Till then, let us make peace with the new normal as the human race sees out this crisis.