Is the recession deepening? - Views on News from Equitymaster

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Is the recession deepening?

Mar 3, 2009

Worst quarterly loss ever
Stocks across Asia are trading weak currently, taking a leaf out of the books of their European and American counterparts, both of which ended deep in the red yesterday. In fact, the US benchmark Dow Jones Industrial Index ended below the psychologically crucial level of 7,000 for the first time since 1997 amidst concerns of deepening recession. These concerns were stoked by a massive US$ 62 bn quarterly loss reported at the troubled financial behemoth AIG, the biggest quarterly loss ever in the US corporate history. Continued deterioration in the credit markets forced the largest US insurer to undertake billions of dollars in write downs and restructuring charges, thus leading to massive net worth erosion. The loss also forced the US government to provide extra US$ 30 bn funding to the troubled giant on top of the US$ 40 bn that it has already received through the TARP program. Investors of course took this event as harbinger of things to come and thus made a hasty retreat from stocks, evident from the 4% decline that the Dow suffered yesterday.

Indian auto makers have a good February
Auto sales numbers of some of the leading players in the domestic market raised hopes that the worst may indeed be over for the industry. While Maruti, the market leader in the passenger car market saw its domestic sales jump by 19% in February over same month last year, Hero Honda, leader in the two-wheeler pack, witnessed a sharp 24% jump in sales during the same period. What is more, some of the other players like Hyundai and TVS Motor also witnessed strong growth in sales. As per Mint, a slowing economy coupled with rising interest rates had led to sales dipping sharply for all the months since July (with the exception of September).

However, certain measures like the government stimulus package and increased salaries for government employees, courtesy the sixth pay commission, seemed to have played a key role in reversing the trend. Furthermore, interest rate reductions by certain PSU banks have also played their part in reviving the demand.

Not all segments are benefiting from the measures though. Sales of commercial vehicles have continued to go downhill, as evident from leader Tata Motors' numbers, where sales have come lower by a significant 25%. However, even here the performance has been better than the previous months where sales had been battered out of shape. All in all, while the numbers are indeed heartening, waiting for a couple of more months before passing the verdict could be the right thing to do.

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