India misses out on the Asian surge - Views on News from Equitymaster

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India misses out on the Asian surge

May 2, 2009

As if greedy bankers and sleeping policymakers were not enough to shake the world with the financial pandemic they helped create, the pigs are having their day in the sun now. Originating in Mexico, where almost 1,600 people have been taken ill and around 160 dead, a deadly swine flu is fast spreading its wings across the world. A spokesman for the World Health Organisation has said that the virus was spreading quickly in Mexico and the southern US and has the potential to become a pandemic and a global threat.Anyways, the global stockmarkets seem to have taken risks like these in their stride given the turmoil they have seen over the past 15 months or so. This week, for instance, markets around the world did not seem to panic even when reports of swine flu spreading around the world flooded the media. Investors now seem to be more cheery about what looks like an economic recovery around the world. As seen from the performance of the western and Asian markets this week, a flu pandemic did not seem such a worry given that investors took heart from signs of improvement in their respective economies.

Source: Yahoo FinanceSource: Yahoo Finance

Coming to the performance of Indian markets during this holiday shortened 3-day week (markets were closed on April 30th and May 1st on account of Parliamentary Elections and Labour Day respectively), the benchmark BSE-Sensex clocked a marginal 0.7% gain. However, these gains were not without their share of volatility given that the Sensex rose 400 points on the last trading day (Wednesday) after dropping by 370 points the previous day.

As for the performance of BSE sectoral indices, stocks forming part of the IT and banking sectors emerged as top gainers during the week. The BSE-IT and BSE-Bankex recorded gains of 4.2% and 1.7% respectively. On the other hand, stocks from the realty and metals spaces lead the pack of losers, with their benchmark indices dropping by 5.6% and 3.9% respectively on BSE during the week. Stocks from the BSE-Smallcap and BSE-Midcap indices also traded weak, declining by 2.4% and 3.1% respectively.

Source: BSESource: BSE

For corporate India, the weak started with ICICI Bank announcing its fourth quarter and full year FY09 results. The company reported the biggest drop in profits (down 35% YoY) in six years for 4QFY09 while the number was down almost 10% for the full year. And the reasons for such a performance are now known to one and all. The bank got a little complacent in terms of pricing in the risks. However, thankfully due to the RBI's strict supervision, it stopped short of seeking bailout and conserved capital. Nevertheless, the bank did erode its shareholders wealth this fiscal and disclosed additional risks on its balance sheet. While it may not be appropriate to criticise ICICI Bank's strategy of pioneering the retail credit boom in India since 2004, it has had to pay the price for getting callous.

The week also saw India's leading telecom services company, Bharti Airtel, announce its FY09 results. While the company continued with its strong performance in recording a 38% YoY and 23% YoY growth in sales and profits for the full year FY09, what made the difference this year was that, after seven years of listing, the company announced its first ever equity dividend (of Rs 2 per share). While the reason for not paying dividends all these years, as attributed by its management, was Bharti's huge capital expenditure (capex) programme to spread its wings across the entire country, what has made the company announce a dividend this time around? Crossing the peak capex requirement, the management has indicated. We appreciate that these top guys recognise that the Indian telecom market has reached a near-maturity stage after years of rollicking growth. So, how slow will growth happen in the following years? Well, we have to wait and watch! As per Bharti's management, they plan to continue to reach for the sky.

With a fair number of Indian companies having made their March quarter results public, a trend line can be drawn across profit numbers without running the risk of going drastically wrong. After putting up with a poor December quarter, things have begun to look up for India Inc. in the current quarter. While the topline is getting a boost in some cases on account of the government fiscal sops, worst for the operating margins also seems to be behind us as easing raw material prices is helping companies earn more per unit of product sold.


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