Second Covid-19 wave: Export-oriented sectors may be bright spots in FY22

Exports in April 2021 showed a positive trend over both April 2019 and April 2020
Domestic economic activity is going to be affected by the magnitude of the second wave with at least 45,000 Covid-related deaths in April 2021. But the global economy is recovering and exports may be the saving grace this financial year.

Base effects are a major problem in judging economic activity. The lockdown started in late March 2020 and continued through most of Q1FY21. The economic activity started to recover only late into Q2FY21. To get a clearer picture, we need to consider earlier data as a benchmark.

The export performance in March 2021 was positive, over both March 2020 (affected by the lockdown) and March 2019 (a normal month). Exports in April 2021 also showed a positive trend over both April 2019 and April 2020.

In March 2019, merchandise exports (non-petroleum) hit $32.72 billion, while March 2020 saw exports of only $21.5 billion. In comparison, March 2021 has exports of $34.45 billion. April 2019 saw non-petroleum merchandise exports of $26 billion, while the April 2020 exports plunged to $10.1 billion, and April 2021 exports rose to $30 billion. While we can discount the 2020 figures, comparisons with 2019 are also positive, indicating that exports were indeed on the recovery track.

This is good news for several industries, which have export-orientated and a fair number of listed firms. Gems and jewellery, for example, seems to have made a comeback over the past four months, after being in the doldrums through most of CY20. The textiles sector also shows signs of recovery. Electronics goods and iron ore are two other sectors that seem to be doing very well in terms of exports.

If the global economy continues to stay on the recovery path, these sectors should be kept afloat by rising activity. But apart from a possible global third wave that affects global activity again, there is the chance of the ongoing second wave in India causing further disruption. Labour shortages are likely and supply chains could also be adversely affected by the second wave. Investors may need to be braced for that.

The other factor that is worth watching is the exchange rate. After a dip in Q1, the rupee recovered and stayed strong through most of CY20. It hit a low of Rs 76.6 to the dollar in mid-June 2020 and recovered to a high of 72.45 in mid-March 2021. Since then the currency has been under pressure, falling to a recent low of Rs 74.9 before recovering some lost ground to around Rs 73.89. The signs are that the rupee can remain under pressure through most of 2021-22, given a combination of inflation trending higher and the huge government borrowing programme, alongside a QE (quantitative easing) by the Reserve Bank of India. A weaker rupee will also be good for exporters.






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