Page 5 - Al-Rashed Newsletter May 2020

“When the dust settles… “expect consumer discretionary demand to come back with vengeance. Consumers, all this
while, would have tried to conserve liquidity given the uncertain environment and lack of positive income catalyst. So
as and when the dust settles and consumer sees a semblance of the storm having passed with income certainty
restored, she would release the pent-up demand and consume discretionary items (both high and low tickets).
So sales of white-goods, jewelry, apparels, watches etc. will make a comeback.

“When the dust settles… “expect governments to curtail some capital expenditures on infrastructure projects. This may
have a deleterious impact on the infrastructure ecosystem (direct as well as indirect) and can impact job creation in the
medium term.

“When the dust settles…” some retail banks and NBFCs would be cautious in lending, given increased NPLs from the
MSME and individual unsecured loans segment, the system would be clogged with lenders trying to collect after a
fairly long moratorium. Corporates who have just de-leveraged or have been in trouble due to leverage may want to
tread cautiously before they start spending on the expansion. Despite the rates being lower the risk premium in the
sector would rise and hence the cost of borrowings may not fall significantly other than the Auto/personal loan and the
large and strong corporate loan segment. There would be enough opportunist entrepreneurs or promoters or
corporates willing to take risk if cheap money is provided. For some segments like MSME, the risk aversion can
change if the government participates in the risk by providing credit guarantees or any other mechanism to share risk
and there could would be push from the Government to state owned banks to start wring higher risk on private sector.
This is because the Government is not in a position to spend on investments in this cycle due to higher healthcare
expenses and subdued revenues.

Hope you find this relevant for a thinking framework going ahead.

MR. GOLDY CHADHA
KEY ACCOUNT MANAGER