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Stimulus withdrawal? No chance

Jul 10, 2009

There is no doubt in anyone's mind that the G8 summit being held in Italy has economic stimulus as its central theme. And there are diverging views emerging on it. While there are some countries like Germany who are warning that it's time to go back to days of a sustainable budget and put in plan an exit strategy, the US and the UK are squarely on the other side of the table. Pointing towards the fact that unemployment is still high and stock markets are behaving increasingly wobbly, they argue that the recovery is too fragile currently and additional stimulus measures do indeed need to be considered. They have also found a supporter in the form of IMF, who in its latest report has maintained that the rebound is likely to be 'sluggish' and hence, governments should continue with the stimulus measures. As per Bloomberg, ever since the onset of the crisis, nearly US$ 2 trillion have been pumped into economies across the globe in what could be termed as the biggest borrowing spree in 60 years. But it has barely helped. Such has been the damage from the crisis that most economies, especially the developed ones are likely to witness negative growth rates for few more quarters to come. Hopefully, the G8 summit paves the way for even more stimulus measures.

Hopes of a better quarter
Barely has the number crunching for the full year FY09 ended and we are already staring at the first quarter results for FY10. Indeed, the results season will receive a big bag opening today what with technology bellwether Infosys slated to announce its quarterly results. Infact, chances are that by the time you read this, the company would have already announced its results. Given the memories that the year gone by has left behind, everyone would be keen to start on a clean slate. Even we have tried to hazard a guess on how the numbers might turn out.

For companies that are entirely domestic dependent, expect a rather muted topline growth on account of the slowing down of the economy in the aftermath of the global crisis. However, companies that derive a good part of their revenues from rural areas might throw up some positive surprises. The biggest joker in the pack we believe could be operating margins. Although the trend is pointing towards an improvement in the same what with inflation down and prices of most industrial commodities off their highs, any further improvement on account of cost cutting may really enthuse the markets. As far as other cost heads are concerned, with most players adding capacities depreciation charges are likely to come on the higher side while some respite could be expected on the interest rate front what with some of the rate cut measures initiated by the RBI slowly finding their way into the loan books of corporates. All in all, India Inc looks set to add a few percentage points to its bottomline growth with the bias being on the higher side on account of better than expected growth in operating profits. It's over to the results now.

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