Fleeting economic improvements not sustainable: Motilal Oswal

The 9-year high PMI and several high-frequency indicators in September have raised hopes of a grand festive season.

Sounding a note of caution on over-enthusiasm on a likely economic recovery, Motilal Oswal Financial Services on Wednesday said that these improvements may not be sustainable. The 9-year high PMI and several high frequency indicators in September have raised hopes of a grand festive season. Attributing the recent uptick in growth trends to base effect the brokerage house said that these improvements were likely to be fleeting than sustainable in nature.

“Favorable base effect, pent-up demand and strong inventory re-building in the hope of a grand festive season have led to the better-than-expected economic growth in Aug- Sep’20. It seems more likely to fade soon because the fundamentals don’t suggest better-than-expected recovery to continue in the future,” the report pointed out. The brokerage house warned that several factors will push up growth even higher in October, which should then taper off.

“Higher growth can be sustained only if household income grows faster, Government receipts/payments for households are exceptionally high/low to offset low income, and Credit growth is much higher-than-usual,” Motilal Oswal financial services said. “On close inspection, none of the above seem to be formulating in the Indian economy.”

As against an average growth of 7% between Jan’18 and Feb’20, according to Motilal Oswal Financial Services estimate of economic activity activity index, India posted growth of 4.4% in Aug’19, 2.8% in Sep’19 and only 1.3% in Oct’19, creating a favorable base for the current months. As against the broad consensus of double-digit contraction in real GDP, Motilal Oswal Financial Services has pegged the decline could be much lower at 7.1% YoY in 2QFY21 and 6.5% for the full-year FY21.
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