|»5 Minute Wrap Up by Equitymaster|
On This Day - 11 JULY 2009
A superhighway to growth?
In this issue:
Also, as per Mr. Nath, road projects in the country require about Rs 2,000 bn over the next three years for which his ministry is considering innovative financing instruments that will fund road projects and attract domestic and foreign investors. If indeed these plans are executed as per stated, it could mean a big fillip to the fortunes of many companies in the country, especially the ones that make up sectors like engineering/capital goods, cement, and steel. Surely one development to watch out for!
Until now, the promoters of the company were the ones who bagged the top jobs and in expressing an interest in an outsider taking over the reins of the company in the future, Infosys is once again setting another precedent. In fact, given the company's ability to enhance the depth of its top management, we will not be surprised if this 'outsider' also makes a significant contribution to the company and the industry in the future.
"The Great Depression was deepened by a sense of lost confidence or animal spirits that was a self-fulfilling prophecy. The worry is that we will have the same kind of issue arising again," says Shiller. He also concurs with Warren Buffett by feeling that the US needs another stimulus package because President Barack Obama's initial US$ 787 bn plan hasn't been implemented fast enough.
Both Roubini and Shiller are of the view that lasting improvement in consumer sentiment is needed before growth can resume, and that the recession will probably continue for six months as companies struggle to pay their creditors, possibly leading to a massive wave of corporate defaults going forward. Assuming that a worst is already behind us might just turn out to be not so well-founded after all.
Obviously, several Indian companies are adopting a long term view and do not want to cut back on capex just because there is a slowdown. The sector which leads the pack is auto (66% growth) which has been propelled to the top largely due to the JLR acquisition by Tata Motors. Other sectors which witnessed increasing capex were oil & gas, telecom, power, capital goods and engineering. What is more, the capex incurred has not been only for the domestic market but also for expanding abroad by acquiring companies. However, while the capex growth in FY09 was robust, the same is likely to come down going forward as the problem of overcapacity sets in.
But as we have seen before, too much of optimism can be dangerous. Extreme optimism in 2008 led to ambitious plans in the retail sector, only to be later rescheduled in 2009 as many retailers faced host of financial issues. Considerable opportunities are available to grow and expand, but they are accompanied by unique set of challenges. How many of these planned 315 hypermarkets see the light of day remains to be seen.
Coming to the performance of BSE's sectoral indices during the week, stocks from the FMCG and auto sectors emerged among the favourites. While the BSE-FMCG Index ended the week higher by 4%, the BSE-Auto Index fell by just around 1% over the previous week. On the other hand, stocks forming part of the BSE-Realty Index were in for a reality check as the index dropped by 17% over the previous week. It was followed by the BSE-Bankex and BSE-Capital Goods indices which dropped by 14% and 13% respectively.
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