There has been a lot of buzz about the extension of the lockdown. The government should be a little cautious and lift restrictions. This would ensure that the rabi harvests can start reaching the marketplace. So far, despite the reports of bumper harvesting, start of the season is already slow (Mangos have not reached the market yet!). Reasons could be attributed to lack of trucks, shortage of labour and even mandis being shut.
Reports suggest that only a fraction of the nearly 7,000 wholesale markets in India are actually functioning currently. This runs the risk of being an inflationary force on the economy. It could tie RBI's hands in reducing rates and easing monetary policy further. Something the economy can ill-afford at this point in time.
Maruti Suzuki beats the competition:
The auto industry has gone through a massive disruption; sales slowdown, production cuts, BS-VI and now coronavirus. But champions are the ones who wither these challenges and emerge as winners. Maruti Suzuki is one such winner. Entry of new entrants like Kia and MG and the scrapping of diesel engines were seen as potential roadblocks for Maruti. In fact, some naysayers expected the company to lose market share.
However, in this tough environment, Maruti Suzuki has managed to increase its market share in the passenger vehicle segment by 500 bps to 63%.The company has efficiently handled the BS-IV transition period and managed to hold on to its own. Going ahead, buyers are likely to opt for value buying over luxury. This would further provide an impetus to Maruti.
Key takeaway: Maruti has benefited from its extensive market share and cash reserves to keep its competitors at bay. Its BS VI vehicles are also cheaper compared to the competitors. Prices of its BS-VI vehicles went up by an average of Rs 10,000 to Rs 15,000 only, compared with Rs 25,000 to Rs 40,000 for competitors.
Information Technology: Tough times ahead
Information Technology is a sector that is currently in trouble due to key global markets remaining shut. The real impact of Covid-19 will be felt in Q1 with major markets like the US, UK, and Europe likely to see an extended lockdown. As a result, the revenue growth in FY21 for the top four IT companies is expected to remain flat to negative.
Key takeaway: Currently, investors will be focused on the management commentary around COVID-19 and how they plan to mitigate the challenge. Will the companies be able to gain from INR depreciation and protect their margins? Or, will the new deal pipeline and contract renewal get postponed? These would be the key areas to focus on.
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