Indian Equity Research and Investment Strategy
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We are presenting to you the Chart from our data that we have maintained over years about Indian Industrial Production Growth Rate.
Data from the following chart suggests that India’s IIP reported in Jan-09 is the lowest in the past 6 years.
Industrial production declined 0.5% YoY in January-09 compared with a decline of 0.6% in December-08 (revised upwards from -2% earlier) and growth of 1.7% in November. The decline in January was lesser than market expectations (Bloomberg survey) of -0.9%.
The manufacturing segment declined 0.8% in January compared to -1% in the previous month. The key contributors to this decline were food products, non metallic mineral products, basic metal & alloy industries and metal products & parts. The mining segment also declined 0.4% in January compared to growth of 1.8% in the previous month. The growth in the electricity segment, however, accelerated to 1.8% vs. 1.6% in December.
Growth in consumer goods decelerated to 1.1% in January compared to 1.5% in December. Within consumer goods, growth in the durables segment accelerated to 2.5% on low base effect (vs. -4.1% in December) while non-durables segment growth slowed to 0.7% vs. 3% in December. Capital goods growth accelerated to 15.4% in January mainly on low base effect compared to 5.2% in the previous month. Basic and intermediate goods declined 1% and 9.2% in January (vs. +1.9% and -9.4% in December) .
Other indicators of activity such as the Purchasing Managers Index, exports growth, non-oil imports, and motor vehicle sales have also been very weak in January. We continue to expect activity to slow considerably in the January-March quarter of FY09.
In a related development, Indian Inflation Touched a new 6 year low at 2.43%.
Investors have so far focused on risk to pricing, but a reset of volumes could surprise on the downside. Morgan Stanley says cases of banks resetting overall portfolio spending on offshore vendors, leading to significant cuts in offshore spending. Resetting business volumes with existing clients is the biggest concern for IT vendors. Lower budgets and rationalization of portfolios is on the cards of major FIs.
Although companies have been able to maintain pricing for contracts so far, rates could come under severe pressure if overall volumes were to contract. (more…)
Sesa Goa is India’s largest iron ore producer exporter with an expected annual output of 16 mn tons in FY2009 and would go up to 25 mn tons by FY2012 following recent expansion initiatives. According to Sesa, with its average cost of production of US$24/ton, it is in the first quartile of the global cost curve and the cost of production at its Goa operations at less than US$15/ton are the lowest in the world.
Sesa Goa has operations in Goa, Karnataka, and Orissa. Logistics costs greatly impact performance across geographies. (more…)
Goldman Sachs has revised the EPS estimates of PSU Banks – SBI, PNB and BOB. The 3Q2008 results of these banks reflected strong demand for new loans, significant improvement in their pricing power for loans leading to higher NIM and significant gains on their bond trading portfolios due to rise in bond prices.
SBI:
SBI is expected to report an EPS of Rs 132.80 and Rs 147.35 for FY09 and FY10 respectively.
PNB:
Punjab National Bank is expected to report an EPS of Rs 51 and Rs 68 for FY09 and FY10 respectively.
BOB:
Bank of Baroda is expected to report an EPS of Rs 32 and Rs 36.02 for FY09 and FY10 respectively.
The spectacular rise in capital flows from FY05 (fiscal year ending March 2005) had significantly reinforced India’s growth and asset price cycles. The termination of this episode of strong capital flows, a fall-out of the current global credit crisis, is unleashing a significantly more challenging macro environment characterised by lower growth, structural fiscal deterioration and constrained liquidity.
India’s medium term potential growth rate should shift to a lower trajectory of 6.5% from the lofty 9% averaged during FY05-09. (more…)
