Friday, January 29, saw the release of the Economic Survey for FY21. The Economic Survey, which precedes the Union Budget, is an annual affair and is most sought after as it gives a taste of what to expect from the finance minister. This time, the survey as well as the Budget, is all the more important given that we continue to be in the midst of “once-in-a-century” crisis.

But Friday also marked the fifth consecutive day of equity markets closing in the red since January 21—when the 30–stock S&P BSE Sensex and NSE’s Nifty 50 touched their respective life–highs of 14,753.55 and 50,184.01 points. The Sensex and Nifty closed 1.26% and 1.32% lower than Thursday’s close.

At Friday’s low points, the Sensex and Nifty 50 at 46,160.46 and 13,596.75 points each had lost nearly 4,024 points and 1,157 points in comparison to their latest life–highs. In percentage terms, the fall in the Sensex and Nifty 50 works out to 8% and 7.8% each. All in a matter of just five trading sessions since January 21.

For the markets, the most interesting takeaway from the Economic Survey was the estimated growth in the gross domestic product (GDP) for FY21, as well as the fiscal after. “As anticipated, while the lockdown resulted in a 23.9% contraction in GDP in Q1, the recovery has been a V-shaped one as seen in the 7.5% decline in Q2, and the recovery across all key economic indicators,” the survey read.

But, the survey also pointed at the GDP’s estimated contraction of 7.7% in FY21, composed of a sharp 15.7% decline in first half and a modest 0.1% fall in the second half. Sector-wise, the economic survey argues, agriculture has remained the silver lining while contact-based services, manufacturing, construction were hit hardest, although they have been recovering steadily.

The survey further added that the V-shaped economic recovery is supported by the initiation of a mega vaccination drive with hopes of a robust recovery in the services sector. “Together, prospects for robust growth in consumption and investment have been rekindled with the estimated real GDP growth for FY2022 at 11%”, the survey said.

Calling the estimates conservative, the survey pointed out that the estimates reflect the upside potential that can manifest due to the continued normalisation in economic activities as the roll-out of the Covid-19 vaccines gather traction. This would further be supported by supply-side push from reforms and easing of regulations, push to infrastructural investments, and boost toto the manufacturing sector, among other mix of factors.

The above path would entail a growth in real GDP by 2.4% over the absolute level of FY20—implying that the economy would take two years to reach and go past the pre-pandemic level. The projections of the Economic Survey are in line with the International Monetary Fund's (IMF) estimate of India’s real GDP growth of 11.5% in FY22, and 6.8% in FY23.

Reacting to the Economic Survey, Mumbai–based Deepak Jasani, head of retail research at HDFC Securities, argues that a larger fiscal deficit in FY22—though smaller than FY21—is on the cards in the ensuing Budget. “This could spur economic growth, but create pressure on interest rates and inflation later,” says Jasani. In his view, reactions of the sovereign rating agencies would be interesting to watch in context of the Budget proposals. “Given the fact that countries all over the globe are following similar policies, it would be difficult for them to single out India for harsh comments/evaluation,” he adds.

According to Vinod Nair, head of research at Geojit Financial Services, while the market traded negative during the week, due to continuous FPI selling under a weakening global trend, both FPI and domestic investors sold ahead of the key Union Budget. The latter, in Nair’s view, will be the key to add strength in the domestic market to perform better compared to the rest of the world. “The risk is that expectations are high about the government's ability to find a balance between populism, reform, and growth under a weak fiscal position,” says Nair.

Specifically on the Economic Survey, Nair’s colleague V.K. Vijayakumar, chief investment strategist at Geojit Financial Services, points out that the survey calls for more counter-cyclical measures from the government, and GDP growth rate of 11% for FY22 is realistic. “The survey also bats for accelerated privatisation, which is in tune with the Atmanirbhar package announced by the government in May last year,” says Vijayakumar. “If the focus of the survey gets reflected in the budget, we are likely to get a reformist budget,” he adds.

While the Economic Survey was aimed at boosting confidence, it could not lift the market spirits. Joseph Thomas, head of research, Emkay Wealth Management, however says the reasons behind the present bleakness in the market cannot be attributed to the survey findings alone. According to him this was because negative indications from the overseas markets still abound, and this needs to be seen mainly against the background of the spread of the pandemic, and stricter lockdowns in large parts of Europe, which has not gone down well with the market's perceptions about the future of the economic rebound.

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