Get More Info

  • Views Search

    Portfolio Tracker
  • : Economy: Just a reminder!
  • OUTLOOK ARENA  >>   VIEWS ON NEWS >>  JUNE 14, 2004

    Economy: Just a reminder!

    Take the nature of events that have unfolded since January 2004. Starting with the BSE-Sensex breaching the 6,000 levels, tensions in the Middle East, impressive corporate results, 'unexpected' results from general elections, disinvestment imbroglio, common minimum programme, and now the general budget. Amidst all these events, the country has had a favorable pre-monsoon showers and the industrial sector performance continues to remain impressive.

    After a stellar performance in FY04, the Reserve Bank of India (RBI) has pegged the country's GDP expectations at 6.5% to 7.0%. While the rate of growth is lower compared to what was achieved in FY04, one has to keep in mind that last year's performance was also on account of lower base effect from a poor agricultural crop in FY03. The RBI's growth estimate for FY05 is based on the premise of a normal monsoon, sustained growth in the industrial sector and good performance on the exports front. As per the initial data, as of now, all the three legs of the assumption are on a firm footing.

    First, let us consider the monsoon factor. As per the Ministry of Finance, almost 67% of the country's meteorological divisions have witnessed normal or excess rainfall in the pre-monsoon season (i.e. from March 1st to May 15th). As is evident from the graph above, this year's pre-monsoon showers are even better than that of FY03 and is slowly tracing back to the good days of FY97 and FY98. Having said that, one has to wait and watch how the Southwest monsoon actually progresses over the next two to three months before taking a final view.

    Source: Ministry of Finance

    Now, as far as the industrial sector performance is concerned, as is evident from the table above, the momentum seem to be continuing with the manufacturing sector growing by 9.4% in May 2004 on a YoY basis. One important factor to be noted is the performance of the capital goods sector, which grew by almost 17.0% in March'04, which is among the highest that one has seen in the recent past. Performance of the capital goods sector and capital goods imports are factors that are considered lead indicators of industrial sector performance. At the moment, they are favorable.

    The third factor i.e. exports have grown by 19.9 % in dollar terms in the month of April 2004 as compared to the 4.6% growth that was witnessed in the corresponding month of FY04. Imports, on the other hand, have grown by 20.8% during April 2004 as compared with 32.8% last year. One important thing to note about India's surging exports is that this growth has come in the face of an appreciating rupee, which is generally considered to be one factor that makes exports uncompetitive. However, the way Indian companies have restructured their business models over the past few years, the appreciating rupee has not had a major impact.

    While the abovementioned factors have played very important roles in the overall growth of the Indian economy in the past, sustainability is still a key question. And for that, investments (both pubic and private) have to improve significantly from the current level to provide a strong platform for the country's economic growth.

    The graph above clearly indicates the fact that, over the past few years, while asset creation has been on a constant decline, there has been a growth (though volatile) in the sale of the manufacturing sector. When seen in context of the present growth in the manufacturing segment (See graph "Sign of good times?' above), we believe that investments are likely to show sharp improvement starting FY05. As one may notice, corporates have announced significant capex plans for the next five years.

    As seen from the strides taken over the past decade, we believe that the Indian economy is in a strong footing. Perhaps the areas of apprehension are the impact of high crude prices on the country's fiscal situation and the consequent impact on interest rate in the short-term.

  • Get the budget special issue of Money Simplified, our free quarterly publication. Click here!

    Its about selecting the right stock... the right price!

    Equitymaster follows the value-investing approach to selecting stocks for investment. Subscribe to our premium research today!

    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...


    © Equitymaster Agora Research Private Limited |
    Why Personalfn? | Why Equitymaster? | Terms of Use | Contact Us | About Us