Economy: A higher growth orbit - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Economy: A higher growth orbit

Aug 22, 2003

The BSE Sensex and the NSE Nifty are both currently at their two and a half year highs. To a large extent the improvement in the economic prospects of the country have led to this optimism. FIIs too are reflecting this bullishness. FII inflows in to the stock markets crossed the Rs 100 bn mark recently. If we compare the inflows of FIIs during the same period last year it was only about Rs 29 bn, about 30% of the current inflows this year.

Growth in the Indian economy seems set to achieve a higher level as compared to say in the last five years. There is all round support for the growth to be maintained, especially from the government. The government has been successful in carrying out a number of reforms (passing of electricity bill and banking sector reforms to mention a few). Its focus towards the divestment process has also started showing some signs of success. The thrust on infrastructure improvement will actually start bearing fruits in the medium to long term. From the political angle also we have witnessed a stable government, though coalition based, after a long period of time.

Industries are also becoming more and more efficient in terms of running their business (TISCO is the lowest cost steel (HRC) producer in the world, while Hindalco is the cheapest producer of aluminium in the world). Energy companies have posted better results than ever before. Similarly steel, aluminium and other commodity companies are also witnessing resurgence in demand and have been able to grow their topline significantly on account of higher realisations and volume growth. Auto sector has also started witnessing higher growth rates. Auto ancillary companies have gone global and are exporting auto components to international auto majors. Pharma companies have also increased their thrust in R&D and India is emerging as a centre for outsourcing in case of bulk drugs manufacturing. The R&D thrust on the other hand is transforming Indian pharma companies in to major players in the generics segment.

This apart the corporates have taken the advantages of falling interest rates and this has helped them to reduce their interest outgo, thereby improving profitability. Expansion in capacity is planned in a number of sectors like power, steel, petrochemicals, refinery, etc. This is coming after a long period of time and increased investments in the corporate front may further help in improving the economic growth. Also monsoons have remained normal so far during the current year and this will drive growth in the agricultural sector. This will consequently improve demand in sectors like FMCG and foods etc.

Index valuations have corrected to an extent after witnessing sluggishness for the past two years. Though on a short term basis valuations seem stretched in certain sectors (for example steel), considering the government thrust towards infrastructure spending and increased industrial activity, prospects for the economy and consequently the stock markets still look attractive on a long term basis. However one must exercise caution and not get carried away by sentiments and 'khabars', especially in a bull market.

Thorough analysis of the prospects of the economy, sector and companies has to be carried out before investing into any stock. A proper risk return trade-off should be kept in mind and abided by. If one does not have the capability to do these on his own he should not get carried away by rumours and instead get access to unbiased research and do some study before making his investment decisions. And discipline is one such factor one must keep in mind while investing , especially defining ones 'buy' and 'sell' limits.

Equitymaster requests your view! Post a comment on "Economy: A higher growth orbit". Click here!


More Views on News

Top 5 Recent IPO Developments You Should Know (Views On News)

May 12, 2021

So far in 2021, IPOs in India have raised nearly US$ 3 bn, the best start to the year since 2018.

How Did Mindtree Perform in Q4FY21? (Company Info)

Apr 20, 2021

Here's the rundown on the company's latest quarterly results.

How the Regulator Is Ensuring That You Can Make an Informed Decision When Investing In Debt Mutual Funds (Outside View)

Jun 17, 2021

SEBI recently introduced a dynamic scheme classification concept of the Potential Risk Class matrix for debt funds based on interest rate risk and credit risk.

Top 5 Stocks Mutual Funds Bought and Sold in May 2021 (Sector Info)

Jun 17, 2021

A look at what India's top equity mutual funds bought and sold in May 2021.

Why is Bullion so Volatile Now? (Fast Profits Daily)

Jun 17, 2021

Why have gold and silver prices become volatile recently? Find out...

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 17, 2021 (Close)