Sensex 40,000: Signals from Trucks Instead of Ball Bearings - Views on News from Equitymaster

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The Equitymaster Research Digest

Sensex 40,000: Signals from Trucks Instead of Ball Bearings
May 17, 2016

  • Cues from truck sales
  • Profiting from the coming stock market wave
  • Hidden stories beyond bluechips

The humble metal balls find their way into everything. From wind turbines to motorbikes to fridge compressors. Naturally, demand for ball bearings are among the earliest economic indicators. Especially in industrial economies.

For an economy like India, though, ball bearings don't say much. That's because agriculture and services are bigger drivers of economic activity. The onset and duration of monsoons are more reliable indicators of GDP movements.

But another statistic - often overlooked - can predict the direction of the Indian economy. That too, almost 100% accurately...

Truck sales.

Now, demand for commercial vehicles is commonly seen as a barometer of economic health. But demand for trucks and truck financing clearly point to the commercial sentiment in India's vast hinterlands.

Shriram Transport Finance, one of the country's oldest and largest truck financers, has seen its loan growth go below average in four out of the last ten years - FY10, FY12, FY14, and FY15. The correlation with lower GDP growth is evident.

The company specialises in financing used trucks. This is an area banks do not touch and money lenders exploit. Therefore, Shriram Transport's loan growth is a sign of both real demand for credit and financial inclusion.

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