Goldman Sachs’s China recovery data can spark hope for HUL and D-Mart, and make Maruti, Tata Motors and IndiGo more anxious

• The average aggregate demand in China was back to 81% of the pre-pandemic normal as of April 24.
• The demand for consumer staples in China is back to the levels seen before COVID-19 brokeout.
• The relative lag is in consumer discretionary, which, on average, is about 64% of the normal level at the end of April.

China’s equity research team of Goldman Sachs put together a tracker that tracks consumer and industrial demand across China, as the official stats come with a few days lag.

The tracker revealed steady growth in China’s economy. “if we really look at the most recently updated, the average aggregate demand, the level average to about 81% as of April 24. So that’s our last, the data points updated and this is a versus the bottom in February, which is only around 50%. Back in January we were at about 90%. So the pace of the recovery was quite rapid from February to March in the first month of activity resumption,” said Trina Chen, Co-head at Goldman Sachs China’s equity research.

Consumer staples and construction are recovering the fastest. “Consumer staples are food-related demand, essentially demand that has little disruptions and recovered very quickly after the disruption in February in China. Construction was quite depressed back in February, but because of government policy push, so, it’s now back to the pre-virus level, even a little bit higher than the pre-virus level,” Chen said.
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This will be good news for the likes of consumer products makers like Hindustan Unilever (HUL) and Marico as well as retailers like D-Mart and Reliance Retail to name a few. For Sanjiv Mehta, CEO of Hindustan Unilever, who had expected a V-shaped recovery in April, this data from Goldman Sachs will be vindication.

The relative lag is in consumer discretionary, which, on average, is about 64% of the normal level at the end of April, according to Goldman Sachs. That indicates a relatively slow recovery for car makers like Maruti, Tata Motors and M&M who have been struggling with declining sales for over a year now.

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However, China hasn’t fully recovered to pre-COVID levels, as some of the businesses aren’t still fully functional like airlines and theatres. Air travel and tourism business continue to remain weak.
Even in India, hospitality majors OYO and Mahindra Holidays have changed their post-COVID strategy on the premise that people are not going to be flying abroad anytime soon. Both companies believe that people will prefer to travel to places that are within driving distances, and not those where they will have to take a flight to, even after the lockdown is lifted.
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The box office and casino businesses are down due to people avoiding public gatherings. “So these are kind of the differences within the customer discretionary. But, having said that overall we still see a couple of percent improvement, each week sequentially on is probably the most important sector,” said Chen.

Over the past weeks, India has started to relax the lockdown norms, but epidemiologists and public health experts warn that it could result in another outbreak.
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