Companies are poised to do better, bankers are opening the money spigot, consumer wallets are opening up. It's time to invest again
Jim Rogers, “investment biker” and fund manager, still prefers China over India. But wait. India has just wrested a star defector from the Chinese camp. Stephen Roach, one of the few guys who still retain a job and a reputation on Wall Street, believes that “for the first time, India looks [to be] ahead of China as the investment destination in Asia.”
Falling commodity prices have brought down input costs of companies by 37 percent. This helped a 60 percent rise in their net profits. Sales had been flat between December 2008 and March 2009, but now demand is picking up
And here’s the upshot. For the first time, operating margins are creeping up after five straight quarters of decline. Global commodity prices have fallen and working capital has become cheaper. That has helped companies shave off a hefty chunk of their costs. So far, sales have remained stagnant. And indications suggest that the demand for core sectors like steel, cement and even commercial vehicles has already begun to pick up, signalling a broader economic recovery.
Hitting the Road
Ask P.M. Telang, the newly appointed managing director of Tata Motors about his business prospects. “It is not the lack of demand, but the sudden dearth of vehicle financing since October 2008 that affected our sales. The fact that liquidity situation has eased, has corrected that situation.” From the middle of last year, leading banks like ICICI Bank and HDFC Bank pulled the plug on vehicle financing because they felt the interest rate hikes by the Reserve Bank of India would make it tough for the truckers to pay on time.
NIFTY DECOUPLES FROM DOW ON THE UPMOVE
When the Dow index falls, it drags global markets down. But in the absence of very bad news, from the US all the other markets are on their own. This shows Asia is "decoupling" from the US on the upmove
Step Out, With Care
There’s, of course, a school of thought that believes the run-up has been far too swift. Though stock markets around the world have risen, global investors are still wary of the speed at which the Sensex have risen in comparison. Sanjeev Prasad, head of equity research at Kotak Securities, belongs to that school. Prasad, rated by Asiamoney as the third best analyst for predicting the Indian market, says that based on the current earnings of companies the Sensex would find it tough to go beyond 15,000. He said that the index may fall to as low as 11,000 over the next 12 months, if there are any policy surprises. Read that as creeping inflation and a possible rate increase by the central bank in the third or fourth quarter.
(This story appears in the 03 July, 2009 issue of Forbes India. To visit our Archives, click here.)