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Hesitant recovery PDF Print E-mail
Monday, 04 November 2013 00:00
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Passenger vehicles up, commercial vehicles down
 
Nothing tells the story of India’s strange recovery better than two sets of results out the same day—while two-wheeler manufacturer Hero MotoCorp announced a 33.4% hike in monthly sales for October, Tata Motors reported a 10% fall in the number of medium and heavy commercial vehicles over that a month ago—considering this is the start of the busy season and a festive month, that’s a telling commentary of where demand is headed. Passenger car manufacturer Maruti Suzuki reported a 6.3% hike in October sales, Hyundai 17.6% and Mahindra & Mahindra nearly 26%. In other words, the story of a partial recovery, possibly spurred by the likelihood of a better monsoon. While the core sector data, up a whopping 8% in September, suggests the recovery may be more broad-based—this will ensure September IIP will be better than August’s 0.6%—the numbers seem exaggerated. An 11.5% jump in cement output when September 2012 output also grew an impressive 13.8% seems perplexing when major producers like UltraTech and ACC have reported virtually flat volumes in the September 2013 quarter.

Indeed, the M&HCV and UltraTech/L&T story seems more consistent with the numbers coming out of banks and financial institutions on loan growth; RBI’s slightly robust credit growth numbers need to be viewed carefully since they include a new segment of demand—commercial paper—which has moved to banks where interest rates are lower. A Kotak Institutional Equities study shows sanctions for fresh projects in Q1FY14 were R22,000 crore as compared to R41,300 crore in the same quarter in FY13, R74,900 crore in Q1FY12 and R1,13,900 crore in Q1FY11. In the case of ICICI Bank, the corporate loan book, results just out, show corporate loan growth was just 11% yoy. This story is also consistent with the latest PMI numbers for October—though at 49.6 it shows industry continues to contract, this is the same as in September and slightly better than in August.

In other words, there is definitely some sort of recovery—exports are positive for the third consecutive months and in double digits—but it is very narrow. While a good monsoon augurs well for growth, the very high fiscal deficit means the government has to quickly start slowing its expenditures and that will have a contractionary impact on GDP—given how the September fiscal deficit was just R8,000 crore more than in August while it grew by around R70,000 crore in each of the past few months, this has already begun to happen. Which is why, in the best case scenario of a 5.2-5.7% farm growth—projected by CACP chief Ashok Gulati—this year’s GDP is unlikely to rise much above 5%. So, while GDP could grow at less than last year, going by the professional forecasters’ survey reports to the RBI, it could at best be marginally higher. An investment recovery will change everything—expect one in telecom if policy announcements within the next few weeks are friendly—but a larger recovery will have to wait for the next government. And even if all goes well, India Inc needs some time to work off its large debt overhang.

 

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