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Exports show signs of revival - Views on News from Equitymaster
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  • Feb 3, 2009

    Exports show signs of revival

    China showing signs of recovery?
    China's growth may have considerably slowed down in the last quarter impacted by the global economic meltdown. But the Chinese Premier has stated that he saw signs of recovery in the final days of 2008. Although, he believes that more stimulus measures will be needed. China has been hit hard by falling exports, waning demand, fears of social unrest as thousands of workers were forced to leave cities to move back to villages in the wake of factories closing down. China's economic growth slowed to 6.8% YoY in the last quarter of 2008, dragging down the annual rate of expansion to a seven-year low of 9% YoY.

    Interestingly, China's stockmarkets have a different story to tell. After being relentlessly battered in 2008, which saw the Chinese indices plunge by a massive 65%, the Shanghai Composite index gained 9.3% in January, the most among the world's 10 biggest markets. This has compelled the world's largest money managers to be confident about the fact that China will avert a recession. However, according to Bloomberg, Chinese stocks are trading at less than a third of their peak valuations reached in January 2008. The central bank has lowered interest rates five times since September and the Chinese government has already announced US$ 584 bn stimulus plan. Infact, it is expected that the country will enjoy faster growth than the rest of the world in 2009 and 2010 too. While this is most likely to be true given that its developed peers have already slipped into recession, China still has a tough task ahead of it in terms of overcoming the slowdown in its economy fuelled by the global financial crisis.

    Pharma fortunes in the December quarter
    Most of the major pharma companies have announced their December quarter results and the scenario has not exactly been something to cheer about. Two features were notable during the quarter. One was the huge quantum of forex losses that companies with forex debt had to incur due to the sharp depreciation of the rupee against the dollar. The other was the slowdown in revenue growth from the US with the US FDA delaying product approvals. Some companies were also at the receiving end as there was no exclusivity period that they garnered during the quarter, which was present in the corresponding quarter in the previous year.

    Growth in the domestic market was either above or in line with the industry growth rate. The European region also impacted revenues as difficult market conditions continued to persist. In Germany, while the AOK (the largest insurance company in the country) announced the results of the tenders for a variety of drugs, the process itself was mired in controversy with a legal suit now pending. Thus, uncertainty will continue to prevail in the German market till the time the court case gets resolved. All in all, it was not a very enthusing quarter for the pharma sector which is not proving to be as defensive a play as FMCG.

    India's exports display some resilience
    After being battered in the months of October and November 2008, India's exports showed some signs of recovery in December, as reported in a leading business daily. While exports during the month still declined, the same was restricted at 1%, while October and November had seen exports falling by 12% and 10% respectively. Sectors which contributed to the better performance in December were pharmaceuticals, engineering products and some agricultural commodities. However, textiles, gems and jewellery and chemicals continued to face rough weather.

    Handicraft and handloom exports suffered the most with exports plunging by 64% in December. Imports, on the other hand, registered a 9% YoY growth during the month. While there was a sharp increase in the growth of non-oil imports, low global oil prices helped to cushion the blow as oil imports fell equally sharply. India's cumulative exports growth for the period April-December 2008 was US$ 132 bn, clocking a growth of 17%. Conditions in the global markets continue to deteriorate and with no respite being visible in terms of economic recovery in 2009, a robust growth in exports will be difficult. This means that the export target of US$ 200 bn aimed for FY09 will be hard to achieve.



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