Indian economy surprised positively contrary to extreme pessimism during the early days of Covid-19. The economy witnessed significant improvement in high-frequency data indicators like GST collection, diesel consumption, power consumption, e-way bills registered positive yoy growth in Oct20. While it is difficult to gauge the extent of pent-up demand, we understand that economy is coming back to normalcy. Normal monsoon helped Rural India to remain strong compared to urban India which got impacted severely due to lockdowns. RBI and the government also took several steps to improve the liquidity in the system.

2QFY21: A big positive surprise

Corporate India faced multiple unprecedented challenges during the pandemic period – changes in consumer behaviour, availability of labour/material, shipment of products/services, access to finance etc. Corporate India passed this testing time with flying colours. Swift changes – faster & flatter cost structures, revamp of supply chains, consumer service at the doorstep – resulted in significant positive surprise on corporate earnings compared to D-street estimates. 
In Q2FY21, nearly 154 non-bank companies (m-cap weightage 47%) in BSE 500 index reported results till Oct end. Despite the challenging business conditions, 55% of this universe reported revenue growth and 68% reported EBITDA growth for Q2FY21 quarter (Fig2). The sharp focus on cost resulted in many corporate reporting positive EBITDA growth despite de-growth in revenue (40% of this universe) – contrary to the general belief that de-growth in revenue means disproportionate de-growth in EBITDA. On qoq (sequential basis), the improvement was significant as can be seen in Fig3.

AAAPMS Score Card
AAAPMS portfolio companies demonstrated leadership, agility, and resilience during the pandemic crisis. Innovative ways to reach consumer helped them to gain market share. Rigorous cost control enabled them to deliver improvement in profitability. Zero/low leverage – the hallmark of resilience allowed them to strengthen their competitive edge.
In our portfolio, nearly 40% of companies (by weight ex-banking) reported Q2FY21 results. 76% of this universe reported positive revenue growth and 90% of this universe reported positive operating profit growth (Fig5)– significantly better than 55% and 68% for the broader universe, respectively. Our banking holdings also did exceedingly well both in terms of growth as well as asset quality.

Market outlook
Barring a substantial market shock and implementation of broad-based lockdowns amid accelerating Covid-19 cases in the winter months — not our central case scenario — the economy will continue to grow steadily in 2021. US election outcome is round the corner that may add volatility to the market. We continue to remain focused on what we believe to be high quality companies that benefit from long-term trends, are well positioned in their respective market, have a strong business model that generates cash, and are run by a superior management team. We believe these features are essential to generating long-term returns and serve as protection when circumstances change.

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