Sensex Up Over 500 Points; IndusInd Bank, HDFC Bank & Hero MotoCorp Surge 5%

Shares of Eicher Motors are presently trading up by 4%.

Moving on to news from the economic space, S&P Global Ratings has forecasted the Indian economy to contract 5% in the current fiscal as the lockdown imposed to contain Covid-19 pandemic has curtailed economic activity severely.

In a statement, S&P said, "the Covid-19 outbreak in India and two months of lockdown - longer in some areas - have led to a sudden stop in the economy. That means growth will contract sharply this fiscal year. Economic activity will face ongoing disruption over the next year as the country transitions to a post-COVID-19 world."

The rating agency said India has limited room to maneuver on policy support. The Reserve Bank of India (RBI) cut policy rates by 40 basis points in May, meaning the repo rate is 115 basis points lower since February.

It further added that despite the cuts, India banks have been unwilling to extend credit. Small and mid-size enterprises continue to face restricted access to credit markets despite some policy measures aimed at easing financing for the sector.

S&P said the government's stimulus package, with a headline amount of 10% of GDP, has about 1.2% of direct stimulus measures, which is low relative to countries with similar economic impacts from the pandemic.

The remaining 8.8% of the package includes liquidity support measures and credit guarantees that will not directly support growth.

Earlier this week, rating agencies Fitch and CRISIL too had projected a 5% contraction for the Indian economy.

Note that the Indian economy was grappling with its own issues and COVID-19 has made matters worse.

The industry was facing demand problems, due to which business houses were reluctant to undertake CAPEX plans. Unemployment was at its peak and exports were consistently down for several months.

India's GDP growth has been on a consistent decline after peaking out at 7.9% in Q4 of FY18 to 4.7% in Q3 of FY20. This is evident in the chart below:

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Disclosure: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research ...

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