Increased healthcare spending amid the second wave is posing a threat to consumer demand. Economists are seeing a hit on discretionary spend first followed by FMCG especially with the rise in cases in rural areas. This has prompted many economists to raise red flags on a prolonged slowdown in consumption and raise doubts on the earlier expected smooth revival of the economy.
“The second wave of Covid is going to be completely different from the first. This time the demand side disruption looks to be much more entrenched especially in the rural areas which drive consumption for most FMCG players. Covid 2.0 has had a more detrimental impact on rural areas. There is an overhang on the volumes and therefore there could be an impact on the Q1/Q2 volume growth for larger players. However, with the increased pace of vaccination and the Covid cases declining, things could improve and can lead to a revival by H2FY22,” Avinnash Gorakshakar, Director Research at Profitmart Securities told Money9.
On the impact of demand disruption on equities, he said that from an index point of view, markets are already near all-time highs, they are optimistic and there is confidence among investors on the revival from the pandemic with increased vaccinations and treatments. Even if a third wave were to hit us, I don’t see markets correcting significantly.
Sharing his insights on the recent cryptocurrency crash and its possible impact on the markets Gorakshakar said, “Difficult to point out any direct impact of the cryptocurrency crash on markets. This sharp correction in virtual currencies like Bitcoin may lead to high volatility in global markets and may also have some impact on the flows in emerging markets especially flows from hedge funds that may get impacted badly. However, we will need to watch how the effect plays out globally for some quarters to assess an impact on Indian markets.”
Gorakshakar also shared views on whether investors can still look at buying into commodity stocks — ferrous, non-ferrous as well as some of the other soft and hard commodities.
He said, “Commodities could be in a supercycle so the prices for Zinc, aluminium is likely to remain elevated and therefore for companies like Hindalco, Tata Steel, etc. may clock in record profits in FY22. ”
Watch the entire conversation here:
