While the process of unlocking has begun, it would be futile to keep any hope of a V-shape recovery. While several indicators are showcasing positive signs of a rebounce, the economy is still far from returning to normalcy.

The correction seen over the day's proceedings should hardly come as a surprise. We, for sure, believed that celebrations in the market were overstretched as Sensex closed 1.20% down at 33,956.69 while Nifty managed to hold above 10,000 but lost 1.19% to close the day in the negative terrain.

On a positive note though, unlock 1.0 has started to take its effect on the ground. Services-based activity indicators like E-way bills, Electricity generation and diesel consumption have improved in May from the lows of April. E-way bill generation in May (-50% YoY) was better than April (-84% YoY). Similarly, Electricity generation for May (-15% YoY), improved from April (-25% YoY). Diesel consumption also improved in May (-31% YoY) against the April (-56% YoY).

The situation is ought to improve further from June onward with pick up in supply chain, production cycle and people's movement on the ground. However, while India has been progressively opening up, availability of labor and supply of key components are likely to keep the capacity utilization down at least till the second half of FY21.

The pain is likely to be prolonged for the consumer discretionary space while intermediary and B2B businesses have opened up more progressively, with higher average capacity utilization rates.

Key takeaways:

The government's recent stimulus package will further unlock India's manufacturing potential. However, monsoon is going to be the white knight if these initiatives are to yield results.

As per the IMD reports, monsoon progress has been highly satisfactory so far. First seven days of monsoon have delivered ~71% above the normal rain in the country. Currently, the monsoon has advanced to the parts of Karnataka and Tamil Nadu and it is likely to make an onset over Maharashtra within the next two to three days.

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