X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Check out 'economic recovery' here... - Views on News from Equitymaster

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

  • MyStocks

MEMBER'S LOGINX

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

Check out 'economic recovery' here...

Nov 5, 2009

Signs of economic recovery, if any, are sparsely visible only in Asian economies, particularly China and India, as the developed world is still struggling to put forth a respectable GDP growth number. The former's domestic consumption and investment led growth have lured not just local but also foreign investors to the Indian and Chinese stock markets in the past few months.Indian markets in particular are going through the litmus test as investors evaluate the performance of companies at the end of the most difficult 12 months of operations, in a long period of time. The investors' interests also lie in gaining some visibility into the future. While some sectors have managed to show a little colour, others failed to display a sustainable trend.


Source: Equitymaster
Note: Profit growth is for companies in Equitymaster's research universe

The September quarter results of companies in Equitymaster's research universe threw up some clear winners. Sectors like auto, cement and FMCG displayed a magnificent turnaround in their bottomline performance. While these could be considered as lead indicators of an economic recovery given that each of them signify commercial, industrial and consumption growth, there are more pointers to be looked into.

Correction in metal prices, which was the cause for the lower profit growth of steel and aluminum sectors, was also the lead cause for better profitability of the auto sector, besides the volume growth in the latter. An economic recovery in the global markets may kick start a reversal of this cause-effect equation.

Banks failed to show momentum in profit growth despite sufficient liquidity in the system. The same while on one hand could be considered a lag effect of the economic distress in the past 12 months, are also indicative of future perils. While the sector's advances grew by 13% in the last 12 months, the gross non-performing assets went up by an alarming 23% during the same period. The accounts that turned sticky due to the failure to pay on time reflected the adverse business climate in the past, as also some cases of imprudent restructuring that are indicative of losses in future.

Sectors like real estate that are yet to recuperate from the subprime crisis blow continue to languish under the burden of high leverage and poor sales. They have put up one of the worst performances in terms of profitability.

While it is certainly difficult to draw out the exact contours of the 'economic recovery' from these nascent data, there are few interesting indicators to draw out a trend. Domestic consumption and investment hold the key to a sustainable growth trajectory for the Indian economy, as the West tries its best to overcome its inherent problems.

An article on Bloomberg calls Buffett's latest investment in railroads - a play on the US' trade deficit, because the rail containers will be used to import goods from Asia. While the arguably wisest investor in the world is betting big on economic recovery of his nation, we could do well to fathom how favourably we are placed, to stay ahead in the race.


Equitymaster requests your view! Post a comment on "Check out 'economic recovery' here...". Click here!

  

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS