Be it living rooms or public transport, the one question that's on top of everyone's mind is the magnitude of the economic crisis and how long it will last. Some of these queries were answered on Friday by Nouriel Roubini, a leading economic forecaster and Prof. of Economics at NYU's Stern School of Business, at the India Today Conclave 2009.
Roubini, who had predicted the collapse of the US housing market and global recession three years ago, believes that all's still not well with the world economy even though the US has been in recession since the end of 2007. But unlike most other recessions, this one will be a protracted one, which is slated to last for a good 36 months.
With the world's largest financial institutions having collapsed last year, the world's financial system has suffered a cardiac arrest and the global economy is in a semi-comatose state. Despite billions of dollars being spent via stimulus and economic packages, the health of financial institutions is not getting better because US economic losses have touched almost $3.6 trillion, he said.
According to him, while the good news is that the International Monetary Fund is committed to not letting other large financial institutions go the Lehman Brothers way, the bad news is that the credit losses are so huge that it will be rather difficult for any upswing to result in a credible turnaround anytime soon. At present, $1.43 trillion will be required to recapitalise the ailing banking sector of the US, he said.
And if the policy responses are not coordinated and cohesive, the recession could well be L-shaped in nature and the pain could be protracted. The slowdown in emerging economies like China, Korea and India has conclusively proved that the decoupling theory is humbug. The world today is connected by trade, capital and financial channels. This is evident from the slowdown of both the capital and trade flows in these emerging economies. No wonder, their growth has declined from 7 per cent to 3 per cent; these countries have hard-landed already.
Roubini said if retail consumption is falling then corporates are saving cash and thereby curtailing capital expenditure and production. Consequently, job losses are mounting and people are not spending in fear. This has resulted in a vicious cycle and to end this, a collective response from the governments is required.
And if this was not bad enough, Roubini said that even if there is a recovery 12-18 months down the line, it will be warped by the supply side shocks. Commodity producers like oil producing countries have already cut down production. So expect oil prices to touch $100 as soon as the world economy begins to turn around. The only thing that can save the day is prudent and timely action by governments.
Source
Showing posts with label Slow down. Show all posts
Showing posts with label Slow down. Show all posts
Tuesday, March 10, 2009
Sunday, March 1, 2009
Dalal Street losing Rs 100 cr every 5 minutes
After a whopping loss of over Rs 40,00,000 crore in 2008, the stock market is continuing its free fall and investors have lost an average of Rs 100 crore in every five minutes of trade in first two months of 2009.
Cumulatively, the total investors' wealth has got eroded by about Rs 2,82,000 crore so far this year.
However, the meltdown has been less severe so far this year, as compared to 2008 when an average of Rs 100 crore was wiped off in just two minutes of trade, as per an analysis of stock market losses during 2008 and first two months of 2009.
During 2008, the total investors' wealth, measured in terms of cumulative market capitalisation of all the listed companies, plummeted from close to Rs 72,00,000 crore to about Rs 31,00,000 crore.
So far in 2009, the investors' wealth on Indian bourses has gone further down to about Rs 28,60,000 crore, as per the current market value of the listed companies.
There were a total of 246 trading sessions in 2008, while so far in 2009 trades have been conducted on 39 days.
Taking into account a trading session of five hours and 35 minutes every day (markets open at 0955 hours and close at 1530 hours), an average of Rs 20 crore has been lost in every minute of trade so far this year.
This average was, however, more than double at Rs 50 crore in every minute of trade in 2008.
In terms of Sensex movement, the benchmark index has lost more than 750 points in first two months of 2009. During the entire 2008, the Sensex plummeted by more than 10,000 points.
However, if we take into account the price-earnings ratio, the Indian market seems to have become a bit more expensive in the first two months of 2009. It had become cheaper by more than half during 2008 by this measure.
The price-earnings ratio of the Sensex currently stands at 12.82, which is higher than 12.16 at the beginning of the year. However, it had fallen sharply during 2008 from 26.94 at the end of the previous year.
Source
Cumulatively, the total investors' wealth has got eroded by about Rs 2,82,000 crore so far this year.
However, the meltdown has been less severe so far this year, as compared to 2008 when an average of Rs 100 crore was wiped off in just two minutes of trade, as per an analysis of stock market losses during 2008 and first two months of 2009.
During 2008, the total investors' wealth, measured in terms of cumulative market capitalisation of all the listed companies, plummeted from close to Rs 72,00,000 crore to about Rs 31,00,000 crore.
So far in 2009, the investors' wealth on Indian bourses has gone further down to about Rs 28,60,000 crore, as per the current market value of the listed companies.
There were a total of 246 trading sessions in 2008, while so far in 2009 trades have been conducted on 39 days.
Taking into account a trading session of five hours and 35 minutes every day (markets open at 0955 hours and close at 1530 hours), an average of Rs 20 crore has been lost in every minute of trade so far this year.
This average was, however, more than double at Rs 50 crore in every minute of trade in 2008.
In terms of Sensex movement, the benchmark index has lost more than 750 points in first two months of 2009. During the entire 2008, the Sensex plummeted by more than 10,000 points.
However, if we take into account the price-earnings ratio, the Indian market seems to have become a bit more expensive in the first two months of 2009. It had become cheaper by more than half during 2008 by this measure.
The price-earnings ratio of the Sensex currently stands at 12.82, which is higher than 12.16 at the beginning of the year. However, it had fallen sharply during 2008 from 26.94 at the end of the previous year.
Source
It’s an emotional recession
An illiterate old man in Mumbai runs a brisk trade selling pakoras at a busy intersection. He never watches TV and cannot read, but is smart enough to push his sales with clever pricing options. As his profits increase, he branches out into other snacks, recruits support staff and even begins delivering to nearby homes. At some point of time, he manages to save enough money to open up a small shop.
One day, the old man’s welleducated son—thanks to his father’s hard work, he’s enrolled in a local management programme—asks his father, “Dad, aren’t you aware of this thing called the meltdown?” “No,” the father replies, “but tell me about it.” The son quickly runs through the recent chain of events: subprime fiasco, bank failures, global recession, slowdown in India, decline in exports, car sales and a whole host of other things that are too complicated for the old man to digest. But he gets the drift. Businesswise, things are getting bad. The father immediately cuts down on the variety of snacks and reduces staff. Fewer people stop by to eat. Sales drop rapidly. The father gradually looses enthusiasm for the business and closes shop.
Some of the details in this madeup story are perhaps improbable— who, for instance, doesn’t watch television in India?—but the basic premise gives a very coherent picture of the psychology of consumers and business owners today. Much like consumers who were caught in severe financial meltdowns such as the Great Depression of the 1930s in the US, or the Asian meltdown in the late ’90s—a serious crisis of confidence is now gripping Indian consumers who are spending less in the face of economic uncertainty. This is grim news for businesses that have had to contend with a steep drop in sales and are now forced to shut shops and fire employees. Problem is, when fewer goods are produced, less income is generated, further decreasing spending ability as well as consumer confidence, thereby worsening the situation in a deadly, never ending vortex.
Following swiftly on the heels of the US, India is going through a crisis of consumption. Though the rate of consumption growth had almost tripled through the past few decades—from only 3 per cent a year in 1970-71 to 8.5 per cent in 2007-08—a deceleration in this growth is almost certain in the current year .
Naturally, this cutback in consumption is putting people on edge. “I am suffering from Recession Depression,” complains a top investment banker who says that he can’t remember the last time he closed a deal. “Forget cabs, five-star hotels and lavish office lunches, I’m carrying tiffin,” he complains. The slowdown has meant fewer trips to his hair salon and a resolute avoidance of end-of-the-season discount purchases. Clearly, this banker has lost his sense of job security and his appetite for shopping.
Other professionals across the spectrum seem to echo these woes. “I have been dithering for a while now on my much-delayed car change,” says Shariff Khan, an auto engineer-manager in Pune. For the last five years, head hunters badgered Khan with offers, which he gave little time or attention to. Then came the slowdown, and in early February, Khan decided to spruce up his resume, the first time in a decade. He also activated his dormant IIM Ahmedabad and IIT Delhi alumni networks. “You never know,” says Khan. This sudden loss of job security seems to be sweeping the corporate landscape in India. “Unless you’re sure you won’t lose your job over the next 3-4 quarters, you’re not going to buy a new house or car,” says Siddhartha Roy, Chief Economist, Tata Group. Psychologist and author Judith M. Bardwick calls this a psychological recession, “an emotional state in which people feel extremely vulnerable and afraid for their future.”
So, how exactly are people saving to get them through these bleak times? The BT Demand Survey shows that out-of-town travel and outside-of-home food is what people are cutting back the most on. An increasing number of puband-bar goers have downtraded to cafes. Spending on clothes, footwear and celebrations have shrunk, too. Footfalls—which is not the same as buyers—for Shoppers Stop during April-September 2008 were up just 1 per cent. Thirty-year-old Parul Ahluwalia, a private bank executive, is restricting her wedding celebrations to two days instead of three. One of the ceremonies is now to be held at a temple. “Though I may be able to keep my job, there surely won’t be a bonus,” says Ahluwalia.
This hesitation to spend is causing serious pain for businesses. A BT-CII producers’ survey shows just how bad the news is. Demand has shrunk for 90 cent of the respondents in the survey. Nearly 70 per cent rated lack of consumer confidence as the biggest economic problem today—several notches above credit unavailability. “Less than half the inquiries are converting into sales,” rues Rajiv Mitra, official spokesperson for the second-largest car maker Hyundai, although he says that the company has fared better than its peers. Sales are down at all price points for the car maker. “The big real estate developers used to be big buyers but we aren’t seeing them any more,” says Manishi Sanwal, GM, Louis Vuitton Moët Hennessy Watch & Jewellery India. The luxury product maker isn’t too alarmed yet, but admits that the small and medium entrepreneurs aren’t flocking to its outlets any more.
Consequently, companies are making some painful decisions. Ramesh Srinivasan, Executive Director, KPMG, says that companies are cancelling new product launches and cutting back on expansion plans. Retail chains, for instance, are shutting down stores. “It’s no longer wait-and-watch, but cancel,” he says. “An economy that was expanding at 10 per cent growth now has to adjust to 5 per cent growth,” says Subir Gokarn, Chief Economist, S&P, India. Latest available data on capital expenditures from the CMIE indicate that for June-September ’08, as many as 45 investment projects worth Rs 42,700 crore were abandoned or shelved, 20 more than the same period last year.
Cutbacks in production and consumption mean that offices have become stingier. The handset allowance for all of B.K Modi Group’s mid-level officers is down from Rs 10,000 a year to Rs 3,000. “Foreign magazines were disconbt tinued about the same time toilet paper was withdrawn and the joke was that the office didn’t want them misused,” says Ramanathan Bhat, a mid-level employee at a Bangalorebased CA firm. An unforeseen consequence of all of this is a rise in office politics; bosses are getting bossier. “Would you believe, I bumped into my arch rival at the shrink’s last weekend,” says a senior manager of an export house. Turns out, acute insecurity and sleep loss are the common diagnoses for both since only one will keep his job.
So, who looks like they’re doing okay? Rural and semiurban India seem to be immune to the “won’t-spend” virus. Sales of electronics, especially colour TV sets and soaps and shampoos, continue to remain healthy. “Newer markets beyond the top 35 cities are booming for us,” says Ruchika Batra, official spokesperson for Samsung Electronics.
The urban poor, however, are just as vulnerable as the upwardly mobile classes. 23-year-old Ravi Yadav, a flower-garland seller in Old Delhi, took home unsold flowers every single day in January. Gulabi, a 28-year-old sex worker in Mumbai’s red-light area of Kamtipura, where hourly rates go up to Rs 3,000 says: “The amount of work has doubled but rates have halved.”
Ultimately, this dangerous whirlpool effect of a consumption drop leading to a supply slide—and therefore more layoffs and more economic pain—can become a crippling, vicious spin cycle. This is where the government’s stimulus package can become vital bridges between short-term economic uncertainties and longer-term prosperity . Still, stimulus packages can only do so much. For a quick recovery, consumers need to put aside apocalyptic visions of the future, and go out and do what they’ve been best at so far—spend money.
Source
One day, the old man’s welleducated son—thanks to his father’s hard work, he’s enrolled in a local management programme—asks his father, “Dad, aren’t you aware of this thing called the meltdown?” “No,” the father replies, “but tell me about it.” The son quickly runs through the recent chain of events: subprime fiasco, bank failures, global recession, slowdown in India, decline in exports, car sales and a whole host of other things that are too complicated for the old man to digest. But he gets the drift. Businesswise, things are getting bad. The father immediately cuts down on the variety of snacks and reduces staff. Fewer people stop by to eat. Sales drop rapidly. The father gradually looses enthusiasm for the business and closes shop.
Some of the details in this madeup story are perhaps improbable— who, for instance, doesn’t watch television in India?—but the basic premise gives a very coherent picture of the psychology of consumers and business owners today. Much like consumers who were caught in severe financial meltdowns such as the Great Depression of the 1930s in the US, or the Asian meltdown in the late ’90s—a serious crisis of confidence is now gripping Indian consumers who are spending less in the face of economic uncertainty. This is grim news for businesses that have had to contend with a steep drop in sales and are now forced to shut shops and fire employees. Problem is, when fewer goods are produced, less income is generated, further decreasing spending ability as well as consumer confidence, thereby worsening the situation in a deadly, never ending vortex.
Following swiftly on the heels of the US, India is going through a crisis of consumption. Though the rate of consumption growth had almost tripled through the past few decades—from only 3 per cent a year in 1970-71 to 8.5 per cent in 2007-08—a deceleration in this growth is almost certain in the current year .
Naturally, this cutback in consumption is putting people on edge. “I am suffering from Recession Depression,” complains a top investment banker who says that he can’t remember the last time he closed a deal. “Forget cabs, five-star hotels and lavish office lunches, I’m carrying tiffin,” he complains. The slowdown has meant fewer trips to his hair salon and a resolute avoidance of end-of-the-season discount purchases. Clearly, this banker has lost his sense of job security and his appetite for shopping.
Other professionals across the spectrum seem to echo these woes. “I have been dithering for a while now on my much-delayed car change,” says Shariff Khan, an auto engineer-manager in Pune. For the last five years, head hunters badgered Khan with offers, which he gave little time or attention to. Then came the slowdown, and in early February, Khan decided to spruce up his resume, the first time in a decade. He also activated his dormant IIM Ahmedabad and IIT Delhi alumni networks. “You never know,” says Khan. This sudden loss of job security seems to be sweeping the corporate landscape in India. “Unless you’re sure you won’t lose your job over the next 3-4 quarters, you’re not going to buy a new house or car,” says Siddhartha Roy, Chief Economist, Tata Group. Psychologist and author Judith M. Bardwick calls this a psychological recession, “an emotional state in which people feel extremely vulnerable and afraid for their future.”
So, how exactly are people saving to get them through these bleak times? The BT Demand Survey shows that out-of-town travel and outside-of-home food is what people are cutting back the most on. An increasing number of puband-bar goers have downtraded to cafes. Spending on clothes, footwear and celebrations have shrunk, too. Footfalls—which is not the same as buyers—for Shoppers Stop during April-September 2008 were up just 1 per cent. Thirty-year-old Parul Ahluwalia, a private bank executive, is restricting her wedding celebrations to two days instead of three. One of the ceremonies is now to be held at a temple. “Though I may be able to keep my job, there surely won’t be a bonus,” says Ahluwalia.
This hesitation to spend is causing serious pain for businesses. A BT-CII producers’ survey shows just how bad the news is. Demand has shrunk for 90 cent of the respondents in the survey. Nearly 70 per cent rated lack of consumer confidence as the biggest economic problem today—several notches above credit unavailability. “Less than half the inquiries are converting into sales,” rues Rajiv Mitra, official spokesperson for the second-largest car maker Hyundai, although he says that the company has fared better than its peers. Sales are down at all price points for the car maker. “The big real estate developers used to be big buyers but we aren’t seeing them any more,” says Manishi Sanwal, GM, Louis Vuitton Moët Hennessy Watch & Jewellery India. The luxury product maker isn’t too alarmed yet, but admits that the small and medium entrepreneurs aren’t flocking to its outlets any more.
Consequently, companies are making some painful decisions. Ramesh Srinivasan, Executive Director, KPMG, says that companies are cancelling new product launches and cutting back on expansion plans. Retail chains, for instance, are shutting down stores. “It’s no longer wait-and-watch, but cancel,” he says. “An economy that was expanding at 10 per cent growth now has to adjust to 5 per cent growth,” says Subir Gokarn, Chief Economist, S&P, India. Latest available data on capital expenditures from the CMIE indicate that for June-September ’08, as many as 45 investment projects worth Rs 42,700 crore were abandoned or shelved, 20 more than the same period last year.
Cutbacks in production and consumption mean that offices have become stingier. The handset allowance for all of B.K Modi Group’s mid-level officers is down from Rs 10,000 a year to Rs 3,000. “Foreign magazines were disconbt tinued about the same time toilet paper was withdrawn and the joke was that the office didn’t want them misused,” says Ramanathan Bhat, a mid-level employee at a Bangalorebased CA firm. An unforeseen consequence of all of this is a rise in office politics; bosses are getting bossier. “Would you believe, I bumped into my arch rival at the shrink’s last weekend,” says a senior manager of an export house. Turns out, acute insecurity and sleep loss are the common diagnoses for both since only one will keep his job.
So, who looks like they’re doing okay? Rural and semiurban India seem to be immune to the “won’t-spend” virus. Sales of electronics, especially colour TV sets and soaps and shampoos, continue to remain healthy. “Newer markets beyond the top 35 cities are booming for us,” says Ruchika Batra, official spokesperson for Samsung Electronics.
The urban poor, however, are just as vulnerable as the upwardly mobile classes. 23-year-old Ravi Yadav, a flower-garland seller in Old Delhi, took home unsold flowers every single day in January. Gulabi, a 28-year-old sex worker in Mumbai’s red-light area of Kamtipura, where hourly rates go up to Rs 3,000 says: “The amount of work has doubled but rates have halved.”
Ultimately, this dangerous whirlpool effect of a consumption drop leading to a supply slide—and therefore more layoffs and more economic pain—can become a crippling, vicious spin cycle. This is where the government’s stimulus package can become vital bridges between short-term economic uncertainties and longer-term prosperity . Still, stimulus packages can only do so much. For a quick recovery, consumers need to put aside apocalyptic visions of the future, and go out and do what they’ve been best at so far—spend money.
Source
Wednesday, December 3, 2008
How the slowdown will hit your stocks
There is no doubt that the world economic outlook has turned unfavourable. According to a recent report by the International Monetary Fund, the world GDP growth estimates have been cut to 3.7 per cent for 2008 and 2.2 per cent for 2009, which is significantly lower as compared to 5 per cent achieved in 2007.
Likewise, export volume (goods and services) forecast for the developing and the emerging economies has been cut to 5.6 per cent for 2008 against the 9.5 per cent achieved in 2007. Even for 2009, the numbers are not impressive at 5.3 per cent.
To a large extent, the slowdown will be consequent to the sharp deceleration in imports by advanced economies such as the US, Europe and Japan among others.
The picture for India, although not as gloomy as in the case of advanced economies, is nowhere exciting. The global slowdown is likely to impact Indian companies, which export or have their business units in international markets.
To give some numbers, almost 13 per cent of the total Indian exports go to the United States, followed by countries like United Arab Emirates, China, Singapore, the United Kingdom and Hong Kong.
However, as shown in Slowing down, none of these economies are in good shape, and are expected to see a sharp slowdown in economic growth with some likely to shrink next year.
Meanwhile, Indian exports which grew at about 30.8 per cent during April-September 2008, are already showing signs of a slowdown; the growth rate was down to 10.4 per cent in September 2008.
Likewise, export volume (goods and services) forecast for the developing and the emerging economies has been cut to 5.6 per cent for 2008 against the 9.5 per cent achieved in 2007. Even for 2009, the numbers are not impressive at 5.3 per cent.
To a large extent, the slowdown will be consequent to the sharp deceleration in imports by advanced economies such as the US, Europe and Japan among others.
The picture for India, although not as gloomy as in the case of advanced economies, is nowhere exciting. The global slowdown is likely to impact Indian companies, which export or have their business units in international markets.
To give some numbers, almost 13 per cent of the total Indian exports go to the United States, followed by countries like United Arab Emirates, China, Singapore, the United Kingdom and Hong Kong.
However, as shown in Slowing down, none of these economies are in good shape, and are expected to see a sharp slowdown in economic growth with some likely to shrink next year.
Meanwhile, Indian exports which grew at about 30.8 per cent during April-September 2008, are already showing signs of a slowdown; the growth rate was down to 10.4 per cent in September 2008.
And, while official numbers will be released on December 1, 2008, the Director General of Foreign Trade says that exports are already down by 15 per cent y-o-y in October, marking the first such occasion in five years. Other experts, too, have a pessimistic view.
"It is difficult for India to boost exports in the next few months, as the global crisis has deepened, hurting demand around the world. The weak rupee may help to improve the appeal of Indian products among other Asian exports, but subdued demand means that there will be little realised benefit for Indian exporters," says Sherman Chan, economist, Moody's Economy.com.
"The moderation in external orders will hurt Indian businesses, which in turn reduce labour demand and weigh on consumption. Therefore, although India is relatively less trade dependent compared to its Asian neighbours, it is still exposed to external shocks," he adds.
In this light, expect tough times for some of them, which have a visible exposure to global markets. The hit will be on account of lesser volumes, but could also mean lower realisations.
"Companies which are dependent on the export markets or outsourcing will have a bleak future going ahead. Right now they have been protected by the dollar going up. Going ahead, the volume growth anyway is likely to decline; on top of that the dollar rate will come down. Thus, companies will have to keep on reinventing themselves," says Nandan Chakraborty, head research, ENAM Securities.
So, what should investors do? "At this point in time, it is better to stay with companies that are dependent on the domestic growth rather than the outsourcing or the export related story," says Satish Ramanathan, fund manager, Sundaram BNP Paribas Mutual Fund.
"It is difficult for India to boost exports in the next few months, as the global crisis has deepened, hurting demand around the world. The weak rupee may help to improve the appeal of Indian products among other Asian exports, but subdued demand means that there will be little realised benefit for Indian exporters," says Sherman Chan, economist, Moody's Economy.com.
"The moderation in external orders will hurt Indian businesses, which in turn reduce labour demand and weigh on consumption. Therefore, although India is relatively less trade dependent compared to its Asian neighbours, it is still exposed to external shocks," he adds.
In this light, expect tough times for some of them, which have a visible exposure to global markets. The hit will be on account of lesser volumes, but could also mean lower realisations.
"Companies which are dependent on the export markets or outsourcing will have a bleak future going ahead. Right now they have been protected by the dollar going up. Going ahead, the volume growth anyway is likely to decline; on top of that the dollar rate will come down. Thus, companies will have to keep on reinventing themselves," says Nandan Chakraborty, head research, ENAM Securities.
So, what should investors do? "At this point in time, it is better to stay with companies that are dependent on the domestic growth rather than the outsourcing or the export related story," says Satish Ramanathan, fund manager, Sundaram BNP Paribas Mutual Fund.
Apparel & Textiles
The woes of the textile industry just don't seem to end. While last year it was the rupee appreciation that affected textile exports, this year the weakening of demand in recession-struck US, Europe and Japan is expected to impact export growth significantly.
The case is similar for apparel exporters. The cracks have already started showing.
Apparel Export Promotion Council (AEPC) has estimated that exports may drop to $8.78 billion in this fiscal, 24 per cent below the target set by AEPC for FY09. (Last fiscal, India had exported garments worth $9.69 billion).
This, despite the fact that the rupee has depreciated by more than 20 per cent against the dollar in the current fiscal, is worrisome.
Several foreign retailers like Steeve and Barry's along with Mervyns have filed for bankruptcy while others like Fashion Bug and Catherines are downsizing their operations. Even as retailers begin to cut their sales budgets, their Indian vendors have started experiencing decline in volume growth and pressure on their margins.
The rise in Chinese costs (labour, power, currency, lower export subsidies) by nearly 20 per cent y-o-y will result in increasing competitiveness for India. Also, fall in input costs, especially cotton (has come off its peak, but still remains significantly high annually) is a positive for the sector.
But, analysts feel that companies might be forced to pass on these benefits to the buyers to keep their capacities running.
High balance sheet leverage (debt-equity ratio of 2.8) and substantial exposure to the US (near 60 per cent of sales) are some of the concerns faced by Welspun India. The performance of its European brands and distribution companies, Christy and Sorema (accounting for nearly 20 per cent of sales), is at risk given the slowdown in the European markets.
Gokaldas Exports is also likely to underperform after disappointing Q2FY09 numbers and exports comprising 95 per cent of its business.
Alok Industries (earns 43.4 per cent of revenues from exports) seems to have lost investor favour despite a 50 per cent y-o-y growth in revenues and operating margins of over 30 per cent, mainly due to its high debt-equity of 4.1. Bombay Rayon Fashion (BRFL) is relatively better placed, with stronger earnings visibility (44 per cent EPS growth over FY08-FY10E) and a comfortable leverage position (debt-equity of 1.5).
The woes of the textile industry just don't seem to end. While last year it was the rupee appreciation that affected textile exports, this year the weakening of demand in recession-struck US, Europe and Japan is expected to impact export growth significantly.
The case is similar for apparel exporters. The cracks have already started showing.
Apparel Export Promotion Council (AEPC) has estimated that exports may drop to $8.78 billion in this fiscal, 24 per cent below the target set by AEPC for FY09. (Last fiscal, India had exported garments worth $9.69 billion).
This, despite the fact that the rupee has depreciated by more than 20 per cent against the dollar in the current fiscal, is worrisome.
Several foreign retailers like Steeve and Barry's along with Mervyns have filed for bankruptcy while others like Fashion Bug and Catherines are downsizing their operations. Even as retailers begin to cut their sales budgets, their Indian vendors have started experiencing decline in volume growth and pressure on their margins.
The rise in Chinese costs (labour, power, currency, lower export subsidies) by nearly 20 per cent y-o-y will result in increasing competitiveness for India. Also, fall in input costs, especially cotton (has come off its peak, but still remains significantly high annually) is a positive for the sector.
But, analysts feel that companies might be forced to pass on these benefits to the buyers to keep their capacities running.
High balance sheet leverage (debt-equity ratio of 2.8) and substantial exposure to the US (near 60 per cent of sales) are some of the concerns faced by Welspun India. The performance of its European brands and distribution companies, Christy and Sorema (accounting for nearly 20 per cent of sales), is at risk given the slowdown in the European markets.
Gokaldas Exports is also likely to underperform after disappointing Q2FY09 numbers and exports comprising 95 per cent of its business.
Alok Industries (earns 43.4 per cent of revenues from exports) seems to have lost investor favour despite a 50 per cent y-o-y growth in revenues and operating margins of over 30 per cent, mainly due to its high debt-equity of 4.1. Bombay Rayon Fashion (BRFL) is relatively better placed, with stronger earnings visibility (44 per cent EPS growth over FY08-FY10E) and a comfortable leverage position (debt-equity of 1.5).
Auto
The slowdown in the global auto sector is impacting companies with a significant exposure to developed markets.
Auto sales across categories in the world's two largest markets, the United States and Europe were down 16 per cent and 19 per cent q-o-q respectively for the September quarter.
Notably, for companies such as Tata Motors which derive a significant chunk of their consolidated revenues from outside the country, the slowdown will lead to a dip in revenues in the short to medium term. Bajaj Auto and TVS Motors are much less impacted as emerging markets continue to show healthy growth due to low two wheeler penetration.
In the passenger car segment, Maruti Suzuki is trying to take a leaf out of Hyundai i10's success in the export market and is pinning its hopes on the recently launched A-Star, which it expects will deliver, in a phased manner, annual exports of two lakh units by FY2011.
Tata Motors has seen a 20 per cent dip in exports in the current fiscal (till October) due to global economic slowdown. Even for its subsidiary Jaguar Land Rover (JLR), retail volumes dropped five per cent y-o-y for the first nine months of the calendar year.
This was despite a 13 per cent increase in sales of Jaguar cars on the back of the launch of XF model. In the short term, JLR would have to increase its focus on its high growth markets of Russia, China and Brazil on the face of drastic decline in sales from its two largest markets---the US and Europe.
For now, Moody's has downgraded Tata Motors' corporate family rating to B1 from Ba2 on the back of a slowdown in demand in domestic and overseas markets and believes that the outlook will continue to be negative for India's largest auto company.
Going ahead, while demand in developed markets continues to be weak, lower commodity prices (steel, crude oil), lower interest rates and a depreciating rupee could improve the outlook for players in the sector. Overall, the outlook is positive for two-wheelers, but neutral to negative for others.
The slowdown in the global auto sector is impacting companies with a significant exposure to developed markets.
Auto sales across categories in the world's two largest markets, the United States and Europe were down 16 per cent and 19 per cent q-o-q respectively for the September quarter.
Notably, for companies such as Tata Motors which derive a significant chunk of their consolidated revenues from outside the country, the slowdown will lead to a dip in revenues in the short to medium term. Bajaj Auto and TVS Motors are much less impacted as emerging markets continue to show healthy growth due to low two wheeler penetration.
In the passenger car segment, Maruti Suzuki is trying to take a leaf out of Hyundai i10's success in the export market and is pinning its hopes on the recently launched A-Star, which it expects will deliver, in a phased manner, annual exports of two lakh units by FY2011.
Tata Motors has seen a 20 per cent dip in exports in the current fiscal (till October) due to global economic slowdown. Even for its subsidiary Jaguar Land Rover (JLR), retail volumes dropped five per cent y-o-y for the first nine months of the calendar year.
This was despite a 13 per cent increase in sales of Jaguar cars on the back of the launch of XF model. In the short term, JLR would have to increase its focus on its high growth markets of Russia, China and Brazil on the face of drastic decline in sales from its two largest markets---the US and Europe.
For now, Moody's has downgraded Tata Motors' corporate family rating to B1 from Ba2 on the back of a slowdown in demand in domestic and overseas markets and believes that the outlook will continue to be negative for India's largest auto company.
Going ahead, while demand in developed markets continues to be weak, lower commodity prices (steel, crude oil), lower interest rates and a depreciating rupee could improve the outlook for players in the sector. Overall, the outlook is positive for two-wheelers, but neutral to negative for others.
Engineering
The engineering companies, which have been focusing on the overseas markets, could now see some pressure. Many engineering companies have a large exposure to oil producing countries, as these countries were spending on their economic and social infrastructure.
However, the sharp decline in oil prices coupled with the fall in other commodity prices has led to a slowdown.
The expenditure by West Asian countries have already fallen during August-October 2008. The news flow pertaining to many clients asking for renegotiation of prices (to factor in the fall in the commodity prices) and delaying payment, has already started. Such developments will impact margins of domestic engineering firms.
Companies like L&T and Punj Lloyd generate 15 and 25 per cent of their revenues from West Asia, respectively. In case of Punj Lloyd, it had earlier acquired Singapore-based Sembawang, which has increased its presence in South East Asia.
The combined entity has about 70 per cent exposure to the global oil & gas sector. About 90 per cent of this is from South Asia, South East Asia and West Asia. In light of these developments, analysts have started factoring in lower order inflows and pressure on margins
Companies such as KEC International derive a large chunk of their revenues from overseas markets (about 65 per cent order book). KEC has presence in over 16 countries with strong presence in West Asia, Africa, Central Asia and North America. Earlier, when crude oil prices were high, the company was confident of getting orders from companies in West Asia, which is likely to change given the global slowdown.
Analysts believe KEC could gain from the increasing opportunities in the domestic market, where companies like Kalpataru Power and Jyoti Structures dominate (about 85 per cent of revenues come from domestic market).
In the industrial engineering sector, Alfa Laval, which is into the industrial equipment, derives about 30 per cent of its revenue from Swedish based parent, Alfa Laval Group. As per analyst reports, the order intake of the parent company has already slowed over the last two-three quarters.
The engineering companies, which have been focusing on the overseas markets, could now see some pressure. Many engineering companies have a large exposure to oil producing countries, as these countries were spending on their economic and social infrastructure.
However, the sharp decline in oil prices coupled with the fall in other commodity prices has led to a slowdown.
The expenditure by West Asian countries have already fallen during August-October 2008. The news flow pertaining to many clients asking for renegotiation of prices (to factor in the fall in the commodity prices) and delaying payment, has already started. Such developments will impact margins of domestic engineering firms.
Companies like L&T and Punj Lloyd generate 15 and 25 per cent of their revenues from West Asia, respectively. In case of Punj Lloyd, it had earlier acquired Singapore-based Sembawang, which has increased its presence in South East Asia.
The combined entity has about 70 per cent exposure to the global oil & gas sector. About 90 per cent of this is from South Asia, South East Asia and West Asia. In light of these developments, analysts have started factoring in lower order inflows and pressure on margins
Companies such as KEC International derive a large chunk of their revenues from overseas markets (about 65 per cent order book). KEC has presence in over 16 countries with strong presence in West Asia, Africa, Central Asia and North America. Earlier, when crude oil prices were high, the company was confident of getting orders from companies in West Asia, which is likely to change given the global slowdown.
Analysts believe KEC could gain from the increasing opportunities in the domestic market, where companies like Kalpataru Power and Jyoti Structures dominate (about 85 per cent of revenues come from domestic market).
In the industrial engineering sector, Alfa Laval, which is into the industrial equipment, derives about 30 per cent of its revenue from Swedish based parent, Alfa Laval Group. As per analyst reports, the order intake of the parent company has already slowed over the last two-three quarters.
FMCG
The FMCG sector is largely a domestic consumption story, with exports contributing around 4-5 per cent of total sales.
However, for companies like Tata Tea (also see page 4), Dabur and Godrej Consumer, the contribution of their overseas subsidiaries is significant (over 20 per cent of sales). These companies haven't observed any slowdown from their international operations.
Says Amit Burman, vice chairman, Dabur India, "The international business is, in fact, the fastest growing business division within Dabur, growing at almost three times the domestic growth rate."
He further adds that the company would grow in these markets with continuously introducing newer products and entering newer geographies. Most of Dabur's international businesses are situated in the developing world -- countries in West Asia and Africa, thus relatively immune to any major recessionary fears in the developed world.
The management of Godrej Consumer, which owns UK-based Keyline, also feels that Keyline is doing well, in spite of the market conditions.
The FMCG sector is largely a domestic consumption story, with exports contributing around 4-5 per cent of total sales.
However, for companies like Tata Tea (also see page 4), Dabur and Godrej Consumer, the contribution of their overseas subsidiaries is significant (over 20 per cent of sales). These companies haven't observed any slowdown from their international operations.
Says Amit Burman, vice chairman, Dabur India, "The international business is, in fact, the fastest growing business division within Dabur, growing at almost three times the domestic growth rate."
He further adds that the company would grow in these markets with continuously introducing newer products and entering newer geographies. Most of Dabur's international businesses are situated in the developing world -- countries in West Asia and Africa, thus relatively immune to any major recessionary fears in the developed world.
The management of Godrej Consumer, which owns UK-based Keyline, also feels that Keyline is doing well, in spite of the market conditions.
IT
The spending on information technology (IT) in developed economies (the US, Western Europe and Japan) is likely to decline by 5 per cent in 2009, says a Goldman Sachs report.
This does not bode well for Indian IT service providers, which get more than 80 per cent of their revenues from these markets. It is not surprising then that the Indian IT bellwether, Infosys has reduced its FY09 dollar guidance to 13.1-15.2 per cent (as compared to 19-21 per cent at the start of FY09), which is an early indication of things to come.
Apart from the sluggish growth in the banking, financial services and insurance (BFSI) sector, which accounts for close to 30 per cent of the top line of many Indian IT players, and delayed budgets, they now have to grapple with the issue of cross-currency headwinds.
The dollar has depreciated by over 10 per cent against the euro and more than 16 per cent against the pound since October 1, 2008. This is likely to pose a cross-currency challenge, especially for Infosys and Satyam.
While TCS and Infosys are on track with their hiring plans for the current fiscal, other IT players have either reduced their hiring targets or postponed hiring for the moment.
Though there has been no major announcement of deal cancellation or pricing pressure from vendors until now, analysts expect the billing rates to fall materially in the next two quarters.
Companies are trying to increase their exposure in high-growth emerging markets and pursue inorganic initiatives.
In addition, improvement in employee utilisation rate, increase in contribution from fixed-price contracts and higher offshore revenue contribution are also some of the steps being taken to protect margins.
Among frontline IT stocks, analysts prefer Infosys and TCS on account of their capabilities in execution of large transformational deal and leadership positions in key cost saving services such as BPO and infrastructure management.
The spending on information technology (IT) in developed economies (the US, Western Europe and Japan) is likely to decline by 5 per cent in 2009, says a Goldman Sachs report.
This does not bode well for Indian IT service providers, which get more than 80 per cent of their revenues from these markets. It is not surprising then that the Indian IT bellwether, Infosys has reduced its FY09 dollar guidance to 13.1-15.2 per cent (as compared to 19-21 per cent at the start of FY09), which is an early indication of things to come.
Apart from the sluggish growth in the banking, financial services and insurance (BFSI) sector, which accounts for close to 30 per cent of the top line of many Indian IT players, and delayed budgets, they now have to grapple with the issue of cross-currency headwinds.
The dollar has depreciated by over 10 per cent against the euro and more than 16 per cent against the pound since October 1, 2008. This is likely to pose a cross-currency challenge, especially for Infosys and Satyam.
While TCS and Infosys are on track with their hiring plans for the current fiscal, other IT players have either reduced their hiring targets or postponed hiring for the moment.
Though there has been no major announcement of deal cancellation or pricing pressure from vendors until now, analysts expect the billing rates to fall materially in the next two quarters.
Companies are trying to increase their exposure in high-growth emerging markets and pursue inorganic initiatives.
In addition, improvement in employee utilisation rate, increase in contribution from fixed-price contracts and higher offshore revenue contribution are also some of the steps being taken to protect margins.
Among frontline IT stocks, analysts prefer Infosys and TCS on account of their capabilities in execution of large transformational deal and leadership positions in key cost saving services such as BPO and infrastructure management.
Metals
Many metal companies have spread their presence in international markets by way of exports and through acquisitions, in the past few years. In fact, Hindalco and Tata Steel have acquired companies that are significantly bigger in size as compared to their own size.
Although, these companies (Tata Steel, Hindalco and Sterlite Industries) are among the low cost metal producers, the global slowdown is already hurting. Lower global prices have already forced many companies to cut production and prices.
Taking cue from this, stock prices have corrected significantly, wherein, analysts believe that most of the worries are already factored in.
Among ferrous companies, Tata Steel on a standalone basis (5.6 million tonne capacity a year) generates about 20 per cent revenues from exports, but factoring its global operations such as its UK-based subsidiary, Corus (21.1 million tonne a year), the revenue from foreign operation will be about 80 per cent of the consolidated turnover.
In line with the slowdown in the European markets, steel majors such as Arcelor Mittal and BaoSteel have already cut production. Corus, too, is cutting production by 30 per cent.
According to estimates, steel consumption in Europe alone will decline by 20 per cent in 2009 and 15 per cent in 2010. Earlier, Fitch and Moody's changed their outlook for Tata Steel from stable to negative, reflecting the challenging operating conditions in UK, on the back of likely deterioration in demand in Europe and the UK over the next few months.
Among other steel companies, JSW Steel generated about 30 per cent of its revenue from the export markets. It acquired a US-based steel pipe and plate mill last year, with a capacity of 1.75 million tonne.
The company has also lowered its EBITDA estimates from the US operation to $125-130 million compared to earlier estimates of $155-160 million.
Raw material suppliers like Sesa Goa, which are into mining and export of iron ore, could also see some pressure.
Iron ore prices have already corrected by about 60-70 per cent, largely due to concerns over the slowdown. Additionally, the Indian government has imposed an 8 per cent ad valorem duty on export of iron ore fines, which according to estimates will lead to an additional burden of about Rs 60 per tonne.
The company generates about 93 per cent of its revenue from exports, including 65 per cent to China. The environment of slowing demand and shrinking margins mean that companies like Sesa Goa will have challenging times.
In the non ferrous space, Sterlite Industries and Hindalco (due to Novelis) are active in the international markets. Analysts have lowered their volume growth estimates along with falling realisations for non-ferrous companies on the back of falling demand and the correction in LME metal prices.
Here too, world major's like Alcoa (by 15 per cent) have announced cuts in production. Novelis is also looking to rationalise production.
Novelis, which accounts for 65 per cent of Hindalco's consolidated revenue, has presence in over 11 countries and sells 65 per cent of its produce in the US and European markets.
The company's volumes will be vulnerable to slowdown in these markets. In fact, Novelis has already reported a decline in EBITDA per tonne from $200 to about $85; net loss of $103-million in quarter ended September 2008 (loss of $19-million last year).
So, expect the industry to feel the heat.
Many metal companies have spread their presence in international markets by way of exports and through acquisitions, in the past few years. In fact, Hindalco and Tata Steel have acquired companies that are significantly bigger in size as compared to their own size.
Although, these companies (Tata Steel, Hindalco and Sterlite Industries) are among the low cost metal producers, the global slowdown is already hurting. Lower global prices have already forced many companies to cut production and prices.
Taking cue from this, stock prices have corrected significantly, wherein, analysts believe that most of the worries are already factored in.
Among ferrous companies, Tata Steel on a standalone basis (5.6 million tonne capacity a year) generates about 20 per cent revenues from exports, but factoring its global operations such as its UK-based subsidiary, Corus (21.1 million tonne a year), the revenue from foreign operation will be about 80 per cent of the consolidated turnover.
In line with the slowdown in the European markets, steel majors such as Arcelor Mittal and BaoSteel have already cut production. Corus, too, is cutting production by 30 per cent.
According to estimates, steel consumption in Europe alone will decline by 20 per cent in 2009 and 15 per cent in 2010. Earlier, Fitch and Moody's changed their outlook for Tata Steel from stable to negative, reflecting the challenging operating conditions in UK, on the back of likely deterioration in demand in Europe and the UK over the next few months.
Among other steel companies, JSW Steel generated about 30 per cent of its revenue from the export markets. It acquired a US-based steel pipe and plate mill last year, with a capacity of 1.75 million tonne.
The company has also lowered its EBITDA estimates from the US operation to $125-130 million compared to earlier estimates of $155-160 million.
Raw material suppliers like Sesa Goa, which are into mining and export of iron ore, could also see some pressure.
Iron ore prices have already corrected by about 60-70 per cent, largely due to concerns over the slowdown. Additionally, the Indian government has imposed an 8 per cent ad valorem duty on export of iron ore fines, which according to estimates will lead to an additional burden of about Rs 60 per tonne.
The company generates about 93 per cent of its revenue from exports, including 65 per cent to China. The environment of slowing demand and shrinking margins mean that companies like Sesa Goa will have challenging times.
In the non ferrous space, Sterlite Industries and Hindalco (due to Novelis) are active in the international markets. Analysts have lowered their volume growth estimates along with falling realisations for non-ferrous companies on the back of falling demand and the correction in LME metal prices.
Here too, world major's like Alcoa (by 15 per cent) have announced cuts in production. Novelis is also looking to rationalise production.
Novelis, which accounts for 65 per cent of Hindalco's consolidated revenue, has presence in over 11 countries and sells 65 per cent of its produce in the US and European markets.
The company's volumes will be vulnerable to slowdown in these markets. In fact, Novelis has already reported a decline in EBITDA per tonne from $200 to about $85; net loss of $103-million in quarter ended September 2008 (loss of $19-million last year).
So, expect the industry to feel the heat.
Oil & Gas
Only two companies -- Reliance Industries and Essar Oil -- export a good chunk of their production. Essar's share of exports was around 28 per cent of the total sales, in Q2FY09, while for Reliance (55 per cent of sales), Europe contributes around 20 per cent of the total exports.
The slowdown in global demand as well as the recent additions in the refining capacity has resulted into margin pressure for the refining business.
An analyst from Mumbai based brokerage says, "Reliance will face margin pressure, but volume growth in the exports market is still intact." For Reliance, overall volume growth in FY10, in the form of commissioning of Reliance Petroleum's refinery and gas production from its KG basin would provide cushion, which is also a reason why analysts have put a buy on the stock.
Only two companies -- Reliance Industries and Essar Oil -- export a good chunk of their production. Essar's share of exports was around 28 per cent of the total sales, in Q2FY09, while for Reliance (55 per cent of sales), Europe contributes around 20 per cent of the total exports.
The slowdown in global demand as well as the recent additions in the refining capacity has resulted into margin pressure for the refining business.
An analyst from Mumbai based brokerage says, "Reliance will face margin pressure, but volume growth in the exports market is still intact." For Reliance, overall volume growth in FY10, in the form of commissioning of Reliance Petroleum's refinery and gas production from its KG basin would provide cushion, which is also a reason why analysts have put a buy on the stock.
Pharma
Contrary to the global slowdown, the outlook for Indian pharma companies is not as bleak as it is for others. There has been a slowdown in retail drug sales in the 13 key international markets, which have registered a growth rate of 4 per cent y-o-y during January-July 2008 against a 5 per cent growth in the same period in 2007. The world's largest pharmaceuticals market, the US grew by just one per cent during this period.
However, says Hitesh Gajaria, executive director, KPMG India, "A large part of sales in developed markets comprise branded and patented products with higher pricing power."
Indian companies, which sell generic drugs, might not be impacted as much. The need to curb increasing healthcare budgets and the number of products going off-patent, Gajaria believes, will lead to enhanced penetration of generics in key developed markets.
The situation not only helps Indian players expand their presence in multiple foreign markets, but also gives an opportunity (for players such as Sun Pharma sitting on a $500 million cash pile) to look at strategic alliances and outright buyouts.
While the macro environment is favourable, pressures remain. India's largest pharma company Ranbaxy, which gets three quarters of its revenues from overseas, saw its year-to-date sales till September dip 1.1 per cent y-o-y in Europe on the back of pricing pressures in the UK, France and Germany.
The growth opportunity for it (Ranbaxy grew 43 per cent y-o-y for the September quarter in Asia Pacific and CIS countries) and other companies is to tap emerging market economies (Brazil, South Korea, China, Mexico, Turkey, Russia and India), which are expected to grow together at 14-15 percent in 2009.
Companies with a well-balanced sales mix in both developed and emerging markets include Zydus Cadila, Sun Pharma and Glenmark Pharma. With minor growth worries and the defensive nature of the business, the sector as a whole is likely to witness double digit growth with rupee depreciation and the possible reduction in cost of raw materials helping to shore up margins.
Contrary to the global slowdown, the outlook for Indian pharma companies is not as bleak as it is for others. There has been a slowdown in retail drug sales in the 13 key international markets, which have registered a growth rate of 4 per cent y-o-y during January-July 2008 against a 5 per cent growth in the same period in 2007. The world's largest pharmaceuticals market, the US grew by just one per cent during this period.
However, says Hitesh Gajaria, executive director, KPMG India, "A large part of sales in developed markets comprise branded and patented products with higher pricing power."
Indian companies, which sell generic drugs, might not be impacted as much. The need to curb increasing healthcare budgets and the number of products going off-patent, Gajaria believes, will lead to enhanced penetration of generics in key developed markets.
The situation not only helps Indian players expand their presence in multiple foreign markets, but also gives an opportunity (for players such as Sun Pharma sitting on a $500 million cash pile) to look at strategic alliances and outright buyouts.
While the macro environment is favourable, pressures remain. India's largest pharma company Ranbaxy, which gets three quarters of its revenues from overseas, saw its year-to-date sales till September dip 1.1 per cent y-o-y in Europe on the back of pricing pressures in the UK, France and Germany.
The growth opportunity for it (Ranbaxy grew 43 per cent y-o-y for the September quarter in Asia Pacific and CIS countries) and other companies is to tap emerging market economies (Brazil, South Korea, China, Mexico, Turkey, Russia and India), which are expected to grow together at 14-15 percent in 2009.
Companies with a well-balanced sales mix in both developed and emerging markets include Zydus Cadila, Sun Pharma and Glenmark Pharma. With minor growth worries and the defensive nature of the business, the sector as a whole is likely to witness double digit growth with rupee depreciation and the possible reduction in cost of raw materials helping to shore up margins.
Saturday, August 30, 2008
India's economic growth slows, GDP drops to 7.9 pc in Q1
New Delhi, August 29: Indian economic growth moderated to 7.9 per cent in the first quarter of current fiscal, against 9.2 per a year ago as rising borrowing costs impacted manufacturing and some other sectors.
However, moderation in the GDP growth was expected as RBI hardened interest rates to control double-digit inflation.
If the first quarter GDP growth continues in the remaining months of this fiscal, the economy would expand at the rate more or less projected by Finance Minister P Chidambaram.
As he projected the economy to grow by close to 8 per cent, compared to 9 per cent in the previous fiscal.
Manufacturing growth almost halved to 5.6 per cent, against 10.9 per cent as rising interest rates impacted their expansion. Even though agriculture grew by lower rate of three per cent, it is quite considerable on the high base of 4.4 per cent.
The other sectors which witnessed considerable decline in growth rate are electricity, gas and water supply, which expanded at the rate of 2.6 per cent against 7.9 per cent.
In the services sector, trade, hotels, transport and communication grew by 11.2 per cent, against 13.1 per cent.
While, financing, insurance, real estate and business services expanded by 9.3 per cent, against 12.6 per cent.
However, community, social and personal services grew by higher rate of 8.4 per cent, against 5.2 per cent.
Construction activities also expanded at higher rate of 11.4 per cent, as compared to 7.7 per cent, while mining and quaring grew by 4.8 per cent, against 1.7 per cent.
In absolute terms, India's GDP stood at Rs 7,82,357 crore in the first quarter of this fiscal, against 7,24,949 crore in the corresponding period of 2007-08.
However, moderation in the GDP growth was expected as RBI hardened interest rates to control double-digit inflation.
If the first quarter GDP growth continues in the remaining months of this fiscal, the economy would expand at the rate more or less projected by Finance Minister P Chidambaram.
As he projected the economy to grow by close to 8 per cent, compared to 9 per cent in the previous fiscal.
Manufacturing growth almost halved to 5.6 per cent, against 10.9 per cent as rising interest rates impacted their expansion. Even though agriculture grew by lower rate of three per cent, it is quite considerable on the high base of 4.4 per cent.
The other sectors which witnessed considerable decline in growth rate are electricity, gas and water supply, which expanded at the rate of 2.6 per cent against 7.9 per cent.
In the services sector, trade, hotels, transport and communication grew by 11.2 per cent, against 13.1 per cent.
While, financing, insurance, real estate and business services expanded by 9.3 per cent, against 12.6 per cent.
However, community, social and personal services grew by higher rate of 8.4 per cent, against 5.2 per cent.
Construction activities also expanded at higher rate of 11.4 per cent, as compared to 7.7 per cent, while mining and quaring grew by 4.8 per cent, against 1.7 per cent.
In absolute terms, India's GDP stood at Rs 7,82,357 crore in the first quarter of this fiscal, against 7,24,949 crore in the corresponding period of 2007-08.
Monday, August 25, 2008
After the Games, China's economy faces big hurdles
By Simon Rabinovitch
BEIJING (Reuters) - For China's policy makers the race has only just begun to prevent the world's fourth largest economy from slowing too sharply after the end of the Olympics.
In recent days, the government has unveiled steps to help small firms and raised tariffs for power generators, encouraging them to boost output and so ease crippling electricity shortages.
That followed a relaxation of caps on bank lending and new tax breaks for textile exporters, which have been hard hit by rising costs and weakening demand.
"Post-Olympics China is slowing, not because the Olympics are over, but because of global forces," said Don Straszheim, vice-chairman of Roth Capital in Los Angeles.
"China's macro statistics are going to look terrible the rest of this year and into 2009. China wants to act, and supporting the growth rate is going to be overwhelmingly the top policy priority," Straszheim said in a note to clients.
JPMorgan Chase told clients that the government was studying a fiscal stimulus package worth 200-400 billion yuan ($29-59 billion).
A burst of public works spending would reduce China's reliance on exports -- a source of friction with its trading partners -- and address China's fundamental needs.
While Beijing's new stadiums have dazzled Olympic visitors, China's vast interior is crying out for modern housing and clean drinking water; its fast-growing cities need much better public transport and less-polluted air. The nation's rail network is overburdened and its power grid is inadequate.Continued.......
BEIJING (Reuters) - For China's policy makers the race has only just begun to prevent the world's fourth largest economy from slowing too sharply after the end of the Olympics.
In recent days, the government has unveiled steps to help small firms and raised tariffs for power generators, encouraging them to boost output and so ease crippling electricity shortages.
That followed a relaxation of caps on bank lending and new tax breaks for textile exporters, which have been hard hit by rising costs and weakening demand.
"Post-Olympics China is slowing, not because the Olympics are over, but because of global forces," said Don Straszheim, vice-chairman of Roth Capital in Los Angeles.
"China's macro statistics are going to look terrible the rest of this year and into 2009. China wants to act, and supporting the growth rate is going to be overwhelmingly the top policy priority," Straszheim said in a note to clients.
JPMorgan Chase told clients that the government was studying a fiscal stimulus package worth 200-400 billion yuan ($29-59 billion).
A burst of public works spending would reduce China's reliance on exports -- a source of friction with its trading partners -- and address China's fundamental needs.
While Beijing's new stadiums have dazzled Olympic visitors, China's vast interior is crying out for modern housing and clean drinking water; its fast-growing cities need much better public transport and less-polluted air. The nation's rail network is overburdened and its power grid is inadequate.Continued.......
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